6 min read

Four ways to invest in the world’s future – as well as your own

As a nation, we’re becoming more conscientious consumers and voting with our wallets on issues that matter to us.

Four growing piles of coins sit on a bed of soil, with plants sprouting from the top of each pile.

According to the 2016 Ethical Consumer Report, close to half of us will avoid buying products and services where we are concerned about the company’s ethical record.

We also want to manage our finances in ways that reflect our values. A YouGov survey for Good Money Week found that 54% of British investors want their pensions or savings to have a positive impact beyond just making money. Although OneFamily don’t offer financial advice, here are a few ways your money might just help invest in the world’s future – and hopefully give you a decent return as well. If you are looking for advice, we’d recommend contacting an independent financial adviser. And always be aware that stocks and shares can go up and down, so you may get back less than you invested.

Consider buying shares in socially responsible companies

One way you could do something positive with your money is by buying direct shares and bonds issued by companies whose products, services and business practices make the world a better place.

This could be a start-up exploring renewable energy sources, a waste management company, or just one which treats its workers really well across its whole supply chain.

Buying shares requires you to do some of your own research. As one example, electric car manufacturer Tesla is considered socially responsible and progressive because of its mission to reduce climate change. However, some concerns have been raised about ethics in its supply chain, such as how it sources the raw materials for its car batteries.

As an investor, you can hold enormous power. Shareholders have the right to vote on how companies are run. And by choosing to support companies whose business practices you approve of, you can help shape the future behaviour of other companies too.

Think about investing in ethical funds

If buying and researching companies yourself seems like too much work, another option could be to invest in a fund which follows ethical or green criteria.

Some funds focus on a particular sector or theme such as timber, water, energy, or climate change. Or you could choose a broader fund which invests in, say, UK equities or international bonds, but applies its own screening process to the things it holds.

The screening criteria will vary from fund to fund. A commonly used measure is light green to dark green – light green funds adopt less rigid investment criteria, while dark green funds are more likely to exclude entire sectors on ethical grounds.

Another option is a socially responsible investment (SRI) fund, which might invest in not-so-ethical companies in the hope of encouraging change from within, a process called engagement.

You can buy funds through brokers, financial advisers, online fund supermarkets, or direct from some fund houses.

Look into opening an Ethical ISA

One way you can invest both ethically and tax-efficiently is by investing in an ethical or green ISA.

ISA stands for Individual Savings Account, and can be used as a wrapper for your stocks, bonds, funds, or just cash savings. Whatever profit or interest you earn from your pot of money is protected from the taxman up to the current annual limit of £20,000. Remember that the tax advantages of ISAs depend on your individual circumstances. Also, the tax rules might change in the future.

According to YourEthicalMoney.org, there are around 80 green and ethical funds on the market today, most of which you can access through an ISA wrapper. We have our own Ethical Investment ISA which is designed for people who want to invest in UK companies showing strong standards of ethical and environmental corporate responsibility.

You can invest in this ISA with a minimum investment of £50 a month or a £500 lump sum, so this could be one option for beginner investors. As with all stocks and shares, the value can decrease as well as increase so investors may not get back as much as they pay in.

Research ethical banking and Islamic finance

The Co-operative Bank was the original ethical bank, refusing to lend its customers’ money to companies in certain sectors, such as fossil fuels. But now a new breed of banks boasting ethical business models are grabbing market share with their savings, banking and investment products. These include Triodos BankMetro Bank and Charity Bank, while several smaller building societies and credit unions also score highly against ethical criteria.

We may have only embraced ethical finance in the last decade or so here in the West, but the Islamic world has been banking ethically for thousands of years. Earning interest is not allowed in Islamic law so, rather than making money from money, investors make money from trade and real assets.

Islamic banks don’t speculate in financial markets, buy derivatives, or take big risks with their customers’ assets. They also avoid investing in industries connected to forbidden activities such as gambling, alcohol and tobacco.

Written by Hannah Smith – Financial Journalist

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions.