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

Invest in a way that reflects your values.

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

According to the 2018 Ethical Consumer Report, close to half of us will avoid buying products and services where we are concerned about the company’s ethical record.

And we 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.

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.

Ethical 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. Maybe it's one that's attempting to clean-up an industry or improve standards.

But you need to do your own research to work out whether a company is really having a positive impact. For example electric car manufacturer Tesla is considered environmentally friendly and socially responsible due to its commitment to reduce climate change, but questions have been raised about the ethics of its supply chains.

As an investor, you 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.

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.

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.

There are lots of green, sustainable 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.

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.

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.

Note: 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.

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