Investments & ISAs Overview

Share ownership

Types of investment funds and ISAs

How do ethical funds invest

Finding a green or ethical ISA

Alternative investments

Your next steps

Share ownership

If you are thinking of dabbling in the stock market, or already own shares, it’s possible to shape your portfolio so that the companies you invest in match your ethical principles. In addition to selecting companies for investment on the basis of their ethical credentials, you can also use your power and influence as a shareholder to improve the ethical performance of the companies in which you invest.

However, it can be time-consuming and difficult to check up on the performance of every company you are interested in. The easiest way for ethically-minded individual investors to choose which companies to invest in is to use a fund manager or stock broker who will adhere to a set of ethical constraints.  Another is to invest in a pooled fund which is guided by a green and/or ethical ethos. Different types of green and ethical investment funds and ISAs are described below.

Types of investment funds and ISAs

Ethical Funds

Also known as socially responsible investment (SRI) funds this type of investment generally seeks to avoid certain types of businesses while investing in socially and environmentally beneficial ones. Industries most commonly excluded by ethical funds include alcohol, tobacco, gambling, pornography, animal testing for cosmetic purposes, genetic engineering, intensive farming, armaments and nuclear power.

Green Tech/Climate Change Funds

These 'thematic' funds seek to invest in companies in specific sectors like renewable/alternative energy, carbon-offsetting, sustainable timber and waste management. They may not have the same attitude to certain companies as ethical funds, so it is important to check the fund isn't investing in any areas you would not approve of.

Shariah Funds

These funds may be of interest to Muslim and non-Muslim ethical investors alike, as they tend to avoid investment in areas like alcohol, tobacco, gambling and pornography. Restrictions are also in place on investing in banks or other financial institutions due to the prohibition on excessive 'gearing' or interest-charging. Non-halal and pork meat industries are also excluded.

Please note: this site does not offer financial advice or make any recommendations as to the quality or otherwise of the funds presented. We suggest that you fully consider your green and ethical requirements and speak to an independent financial advisor before committing to any investment. Our independent financial advisor search will help you find a professional ethical investment experience.

How do ethical funds invest

Funds pool together the money of hundreds of investors into a single fund, which in turn invests in the stock market. What makes a fund ethical is what it chooses to invest in. Ethical funds use screening, a 'best-in-class' approach and engagement, or a combination of each of these approaches, in their investment process.

Screening

Companies can either be 'screened in' (positive screening) or 'screened out' (negative screening) of funds based on whether they meet or breach certain criteria. On the positive side, a fund may seek to invest in companies making a positive contribution to society, say in the form of renewable energy or waste management.

On the negative side, a fund might avoid investing in certain areas deemed controversial like the tobacco, arms or fossil fuel industries, companies with poor human rights records, heavy polluters or those that test on animals for cosmetic purposes. Other funds might avoid investment in financial institutions while some, known as 'fund of funds' might invest only in other ethical funds.

Best in Class

In this case, investment decisions are made based on a company's record in relation to its peers. A fund might, for example, invest in the oil or gas sector, but only in those companies which are deemed to be the best in their class, with say, a better record on the environment and human rights than others in their sector.

Engagement

In this instance the fund's manager works with and actively encourages the companies that he or she invests in to adopt or improve social, governance and environmental practices. This can involve meetings with senior management and voting at relevant shareholder meetings, i.e. Annual General Meetings.

Finding a green or ethical ISA

An ISA (Individual Savings Account) is a tax-free savings account designed to encourage people to save money. There are two types of account: a cash ISA and a stocks and shares (equity) ISA.

The annual investment allowance is £11,520, up to £5,760 of which can be saved in cash with one provider, the rest can be invested in stocks and shares with either the same or a different provider. It is possible to transfer ISAs between accounts, though it should be noted that while it is possible to transfer a cash ISA to an equity ISA, the reverse is not allowed. From April 2010 the annual investment will rise to £10,200 (of which £5,100 can be saved in cash).

The money deposited in an ISA linked to an equity fund can be invested in companies listed on the stock market, government bonds and corporate bonds. It is therefore considered to be exposed to more risk than a cash ISA as its performance may be subject to market fluctuations. However, this type of ISA could potentially deliver greater returns in the long-term.

Equity ISAs

The number of green and ethical equity ISAs is growing all the time. There are currently around 80 green and ethical funds available, the majority of which come with an ISA wrapper.

Use our search to find an equity ISA whose policy addresses your green/ethical concerns.

Cash ISAs

A cash ISA is similar to a normal savings account except that the interest earned is exempt from tax and there is a limit on how much cash you can deposit.

If you want to invest your money in a green or ethical cash ISA you can do so with a proven green or ethical provider, i.e.:

• The Co-operative Bank
• Smile
• Triodos Bank
• Ecology Building Society

You can also search our database of banks and building societies to find an ISA provider with the right green and ethical credentials for you.

Alternative investments

In addition to ethical funds and ISAs, there are a number of other green and ethical investment options available, including:

• Triodos Renewables: is a public limited company that invests in large-scale renewable energy projects.
• Newcastle Intermediary Services 'Clean Energy Select Account': is available as a direct investment or cash ISA and invests in a mixture of clean energy technology and equipment companies.
• HSBC Vaccine Investment: open to consumers as an investment plan or an ISA, this product helps raise money for the GAVI Alliance (formerly the Global Alliance for Vaccines and Immunisation). It states that every £1000 invested helps immunise over 130 children from five life-threatening diseases, including Diphtheria and Hepatitis B.
• Triodos Microfinance Fund: this fund provides finance to nearly 40 microfinance institutions in countries in Latin America, Africa, Asia and Eastern Europe.It is open to individual UK high-net-worth or sophisticated investors. The minimum investment amount is currently €50,000 or £50,000 depending on the share class chosen.
• Big Issue Social Enterprise Investment Fund: the investment subsidiary of the Big Issue magazine has launched a new fund which target foundations, charitable investors and high-net-worth individuals. It aims to invest in social enterprises in the health and social care, environment, and employment and skills sectors and will invest between £100,000 and £500,000 in each business.
• Cochabamba is a fully trading Industrial Provident Society, working in equal partnership with poor smallholders on the fringes of the Bolivian Amazon to establish and maintain a profitable and sustainable community-based forestry enterprise.  Investors in the scheme provide the finance needed for local smallholders to plant native species of tropical hardwoods as an alternative to unsustainable farming practices.
• The Ethical Property Company is a blue-chip social business which has operated in the UK for over ten years.  Ethical Property offers the chance to invest in a genuinely triple-bottom line company, whose aim is the support and growth of the social change sector in the UK and abroad.  Shares in the Company are traded on a Matched Bargain Market, designed with the Company to match buyers and sellers in real time, and operated by Brewin Dolphin Ltd.  Ethical Property believes that investment should be accessible and open to all, and the Matched Bargain Market was set up with this belief in mind.  Minimum investment using this mechanism is low, and therefore open to all.     

Your next steps

Check out our Next Steps Guide - Investments & ISAs for further information on finding a green or ethical fund and questions you might want to ask of your existing investment managers or savings institution. Consumers can also use the sriServices StyleFinder questionnaire to analyse their approach to ethical, green or sustainable investing before meeting a financial adviser.