Mention the word ‘investment’ and you’re likely to get one of three responses. First are those for whom the mere mention of the word triggers off a spluttering rant about the iniquities visited on society by the likes of Goldman Sachs, UBS and co. Then there’s those who’ll happily discuss the merits of their portfolio. Finally, there are the others from whom you’ll receive a slightly shifty look followed by the confession that yes, they do own shares, but those shares just so happen to be in BP.
And that sums up the real dilemma for would-be investors. Among those of us who already invest, 44 per cent would like all or some of their investments to include green and ethical considerations, according to a YouGov poll. Considering that the same poll found that 58 per cent of British people consider their lifestyles to be 'fairly green/ethical', that figure is less surprising than it first appears. But despite the fact that nearly half of us that would prefer to make investments that don’t have a negative impact on the planet or its people, most schemes are operated by the likes of Barclays who can use our capital to invest in anything they choose to. Given that projects could be anything from big oil to arms manufacturers, it’s no surprise that many have chosen to avoid investing altogether. But as this year’s National Ethical Investment Week has shown, there are alternatives out there for socially conscious investors.
‘Ethical investments differ in that they apply criteria that governs how they will invest,’ explains Mark Robertson, Head of Communications at EIRIS – an NGO set up to assess the environmental and ethical performance of the world’s leading companies. ‘Unlike normal funds which could and will invest in any company - including areas such as animal testing, tobacco or arms manufacturing - ethical funds have policies in place which basically dictate how money will be invested. Those polices can mean avoiding negative stuff like arms or not investing companies based on how they operate so none with a poor record on human rights or climate change or bribery and corruption. Alternatively, it can be about positive screening so actively seeking out companies providing positive products and services such as renewable energy, clean tech or sustainable transport.’
Investments of this sort are now worth over 11.3 billion in the UK alone, and the market for green funds is growing. Most recently, the growing trend for ethical finance has seen the launch of a new website called Worldwise Investor, which is dedicated to providing up-to-date information about the 120 plus ethical projects available to UK investors. ‘The traditional ethical investment market is small but growing,’ comments Robertson, ‘but the response from investment agenda is bigger. I’d say the key point is that ethical investment is evolving; it is no longer about just avoiding negative problems - it is also about positive investment schemes and providing modern solutions to modern problems such as climate change or even obesity.’
Along with providing a boost to companies working to make the world a better place, another benefit of investing ethically concerns the recipients of such credit, many of whom are based in developing countries. Oikocredit, whose investments include a stake in Divine Chocolate and ethical lighting company, Barefoot Power, says that up to 86 per cent of its microfinance clients (to whom funds are provided) are female. ‘That’s because we believe if we invest in women we can make the biggest material difference to families and communities because more of the profits of that enterprise remain within the family,’ explains Patrick Hynes. ‘For very similar reasons we work in rural areas, which makes the biggest impact [because that is] where fewer opportunities exist. In terms of numbers, our project partners reach a staggering 29 million people.’ Other ethical investment funds work with conservationists, retrofitters or clean technology companies. Still more work in sectors such as sustainable transport or green power. But while this type of investment is undoubtedly green, is it really value for money?
‘It’s a bit of compromise because my husband would probably prefer a more ruthless than ethical route so with our personal banking I’ve not yet managed to persuade him away from Barclays which is a bit of an ongoing issue,’ says Jo Shetty a 47 year-old mother of two who typifies the new breed of ethical investor. ‘One of the [nicest] commitments we’ve made [is that] we have solar panels being installed in a couple of weeks. In terms of investment, they make sense and should hopefully give a return of about eight to nine percent over the next 25 years.’ The average return isn’t quite so high, but then, it isn’t in the world of mainstream finance either. ‘There are some real economic benefits there as well, as well as some of the more touchy-feely ethical benefits,’ says Jon Lee, Development Officer at the Ecological Building Society. ‘Hopefully members feel that they are putting money with us to deliver additional value rather just looking at the interest rate and feeling they have something through being an Ecology member. It is more about delivering long-term value. We wouldn’t dip below one per cent on saving rates which doesn’t sound enormous but given that a number of providers are offer 0.1 per cent on saving accounts having seen the base rate collapse, actually it’s been quite important to some of our savers to see that there is at least a safety net and that their savings are always going to attract a meaningful rate of interest in a low interest rate environment.’
It’s this type of positive investment and stable return that is getting people who wouldn’t normally consider parting with their cash interested in getting involved. ‘I think for me it’s important to put my money where my mouth is, so I try to consider ethical options as a consumer and that included investment as well as things that I actually spend my money on,’ says Shetty. ‘There are ethical options so for me it’s important to make money as well as making a difference.’ ‘Our clients certainly benefit [from our projects],’ says Hynes. ‘[Our investors receive] a modest financial return - we’ve paid out an average of two per cent per year over the last 20 years so it’s very stable. No-one’s ever lost any money but more than that, people invest in Oikocredit because they want to make a difference.’
The do’s and don’ts of ethical investments
Penny Shepherd, Chief Executive at the UK Sustainable Investment and Finance Association [UKSIF] has the lowdown on how to make ethical investing work for you
Do seek to understand how your savings and investments are being used.
Do recognise that there are a broad range of options in green and ethical investments and a variety of things that you can support. This is increasingly about positive investment, not specifically about avoiding particular activities. It’s also about a range of techniques. Some of it is about choosing where you invest but some is about the responsibilities of ownership exercised on your behalf. If your investment managers are holding shares in a supermarket or an energy company or indeed, a bank, are they encouraging those companies to behave in a long-term responsible way or are they encouraging them to sacrifice the long-term in order to make short-term profits?
Do have the exposure to green and ethical investment that is right for you. Some people will want to have all their investments in green and ethical concerns, while other people just want to dip a toe in the water - both are fine. It’s a bit like some people try to have as much Fairtrade and organic food as possible in their shopping baskets, while others take an approach which says I do it when I feel comfortable with it and I don’t beat myself up when I don’t.
Don’t assume that to be a green and ethical investor you have to live in a yurt in West Wales or whatever the stereotype is.
Don’t assume that green and ethical investments are only appropriate for deep green people. Like Fairtrade, it now appeals to a much wider range of people.
Do seek to understand your green and ethical investments.
Don’t make assumptions that if something is labelled green and ethical, it automatically includes certain characteristics. There is a wide range of products. So if you feel passionately about something specific, look at the information provided and check out whether a particular product addresses your interest area - don’t just assume that it will.
Case study: Ethical Investments
Ethical Investments was founded David Vincent in 1996 as a result of his own environmental and social concerns. The self-professed ‘crap salesman’ had discovered his passion: instead helping destroy the planet, he decided to help it. ‘Investment implies putting capital to work and ethical implies doing so for social benefit,’ he says. ‘Buying and selling shares on the stock market does not put any new capital to work - so it has no real social impact either.’
David established the Cochabamba Project in 2009 working in equal partnership with 978 farmers and smallholders in the Bolivian Amazon basin. To date the project has raised more than £2million for land management and social development, including reforestation. 18 different species of trees have been planted and will reach maturity in 12 to 35 years time. ‘We provide the capital and they provide the labour, it’s completely 50:50,’ he explains. ‘We provide one-to-one support with farmers introducing them to permaculture techniques, what is best to plant and where.’
The Cochabamba district has been subject to decades of poor land management and deforestation as migrant communities have exploited virgin rainforest for valuable timber. Farmers are paid for their land and for maintenance which David says means that they are ‘immediately better off and better in the medium term but also, so are their children for years to come.’ They also, he adds, receive a bonus payment for the community at large, which gives everyone a stake.
Ethical Investments has over 300 members, who last year saw returns of seven-and-a-half percent. ‘We chose to be conservative with the figure,’ says David. ‘It is a risky business, we don’t deny that, and other projects will make more money, but this type of investment offers real social and environmental benefits.’
Case study: The Co-op
‘At the Co-op it’s important for customers to bank and shop in line with their ethical concerns,’ explains PR manager Andy Hammerton. The Co-operative Group is the largest co-operative organisation in the world with over 5.5 million members and funds are worth in excess of £596.44 million. In 1992, the Co-op introduced the world’s first ethical policy for banking, laying out commitments to human rights, international development, animal welfare and the environment, which is updated every four years, ‘Ethical issues change over time, so our policy evolves to reflect the changing concerns of our customers,’ comments Hammerton. The Co-op will not accept money from companies or businesses that do not share their ethical values, he continues. ‘Since 1992 we have declined funds in excess of £1billion from companies who fail to acknowledge basic labour rights, are involved in animal testing, fossil fuel extraction or the trading of armaments.’
Andy believes that they have not ‘lost out,’ but have ‘won business’ because of their opposition. Money goes towards social and environmental projects in the UK and overseas. For example, in the UK, a number of projects aim to inspire young people; developing their creativity and improving employability along the way. In 1996, the Co-op established the first UK community wind farm, now owned by 1,600 local shareholders. The six turbines on the site provide 7,000MWh of electricity a year for 1,600 homes, which saves an estimated 4,500 tonnes of carbon. In 2010, Fit4Finance, another beneficiary of Co-op funds, equipped 2,700 secondary school students with financial awareness and money skills. Microfinancing projects are responsible for lending £25million for the development of small businesses in 27 developing countries around the world.
‘People can rest assured that that their money is being used responsibly,’ says Hammerton. ‘Even if it is just small sums, it can still have an impact.’
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