How to Make Ethical Investments That Make Positive Changes

Ethical Consumer Magazine has some handy tips for Moral Fibres readers on making ethical investments.

There are many everyday ethical decisions that we now consistently make. These include buying Fairtrade tea, choosing a green electricity supplier, or shunning Starbucks in favour of local independent coffee shops.

What About Ethical Investments?

But what about ethical investments? Managing money is another opportunity to make positive ethical choices. However, as yet it isn’t as mainstream as it could or should be.

Ethical Consumer has just released their first guide to Innovative Finance ISAs. This shows consumers how to make ethical investments so that they can potentially use some of their savings to more effectively help tackle issues as diverse as climate change and the housing crisis. So let’s look at what an Innovative Finance ISA is, and take a look at the most ethical ways to invest in one.

What Is an Innovative Finance ISA?

Innovative Finance ISAs (IF ISAs) are a relatively new savings product, introduced in 2016. It offers investors an alternative to the traditional Cash and Stocks and Shares ISAs.

They are great news for ethical consumers who are looking to use their savings for the benefit of society and the environment. This is because they offer the potential to invest in fully transparent ethical projects.

An IF ISA is essentially a way to invest in projects and businesses via a crowdfunding platform such as Abundance or Lendahand. Potentially this gives you total control over where your money is invested. The good news is you can invest in some of the projects for as little as £5, making it an easy way for new ethical investors to test the water.

Changing money markets

IF ISA’s currently account for less than 1% of the UK ISA market, however, they are rapidly growing in popularity. Last year  £290 million was invested in them, eight times more than in 2016/17.

For too long consumers have allowed banks and financial institutions to take decisions for them. The problem is sometimes banks have invested in damaging products and businesses. This includes industries like fracking or palm oil plantations.

Now consumers can cut out the middleman at the bank and create portfolios of ethical projects to invest in using IF ISAs.

There are currently more than 65 platforms in the UK offering IF ISAs. Each offers a wide range of projects to invest in. And aware that consumers are now more likely than ever to look for an ethical option, some of these platforms are marketing themselves as offering ethical investment opportunities.

How to Make Ethical Investments With The Best Innovative Finance ISAs

We’ve done the research and awarded four platforms ‘Best Buy’ status. These are Abundance, Energise Africa, Ethex, and Triodos Bank.

All four platforms offer investments in a range of environmentally and socially-minded projects both in the UK and abroad.

Abundance

Abundance has been a pioneer of raising green finance ever since it launched in 2012. Historically, Abundance has allowed customers to invest even very small amounts, from £5, in different projects. It only funds what it calls ‘socially useful’ projects. These have largely been green energy in the form of wind turbines and solar farms. However, they have also included a project recycling used cooking oil into bio-diesel and, most recently, affordable housing.

Energise Africa

Energise Africa is designed to provide working capital to projects that install and sell solar home systems in sub-Saharan Africa. The aim is to provide more than 111,000 rural families access to renewable energy over the next three years. Home systems tend to provide simple electric lighting and phone charging facilities.

Ethex

Ethex recently funded the Solar for Schools Community Benefit Society (CBS). This was set up in 2016 to enable schools in England and Wales to derive some financial and environmental benefits from solar panels.

Triodos

Triodos is the first UK bank to launch its own crowdfunding platform. Since its launch, the Triodos crowdfunding platform has raised £20 million for eight pioneering organisations delivering positive change. An example is the £1.8 million bond that was successfully raised for Mendip Renewables in 2018. This organisation owns and operates a 5MW community solar scheme and uses its retained profits to support charities in Somerset.

Ethically Invest Sensibly

The Ethical Consumer guide to ethical investments reminds potential investors that whilst only Financial Conduct Authority (FCA)-regulated platforms can offer an Innovative Finance ISA, they come with no other protection. IF ISAs don’t qualify for the savings element of the Financial Services Compensation Scheme (FSCS) that protects up to £85,000 should a firm go bust. Neither do they get the FSCS investing element that covers up to £50,000 in case your investing platform goes bust and hasn’t done what it is meant to with your money.

It is also more difficult to access your money with an IF ISA. Most of the assets (or loans) will be fixed-term, making instant access impossible. You should, therefore, take into account the length of time the asset is held for when making a decision about what projects to invest in.

That said you can limit your risk by investing in these Best Buy options that work closely with projects to ensure that they succeed, and by investing small amounts of money into a number of projects spreading your risks.

If you can afford to take a risk with a small amount of your hard-earned cash, then these platforms provide consumers the opportunity to make ethical investments directly into projects that have tangible positive impacts.