Investments & ISAs Overview
Ethical savings accounts and funds often avoid investing in industries such as tobacco, nuclear power and arms.
They may also seek to invest in 'positive' businesses like renewable energy, sustainable timber and waste management. Furthermore such funds and accounts can generate returns as healthy as their non-ethical equivalents.
If you're serious about social and environmental issues, then choosing an ethical fund or savings account represents a long-term investment, not just in your financial future but the world's future too.
Types of investment funds and ISAs
Finding a green or ethical ISA
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 £7200, £3600 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 90 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.:
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.
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.
Investments & ISAs Search
Green / Ethical Fund
Aviva Investors UK Ethical Equity Fund
The Aviva Investors UK Ethical Fund is available to retail investors as an OEIC (Open-Ended Investment Company) with an ISA wrapper. Only companies that meet the fund’s defined ethical considerations will be considered for investment.
Company Info
Fund Provider
Aviva Investors UK Funds Ltd
Fund Manager
Peter Michaelis
Website
http://www.avivainvestors.co.uk/
fundandsalessupport@avivainvestors.co.uk
Phone
0800 0154 773
Fund Type
OEIC
Sector
UK All Companies
Launch Date
May 1999
Aviva Investors UK Ethical Equity Fund
Positive Screening
The fund seeks to invest in companies whose core business and operational processes address environmental and social issues such as:
- Basic necessities
- Community involvement
- Environmental conservation
- Environmental technologies
- Equal opportunities
- Healthcare and safety
- Positive labour relations
- Training and education
Negative Screening
- Alcohol - the fund excludes companies that derive more than10% of turnover from the production, distribution and/or sale of alcohol products
- Animal welfare - the fund excludes all companies that use animal testing (including companies using animal testing to manufacture or develop medicines)
- Climate change - the fund excludes companies that derive more than 10% of turnover from airports, airlines or cars powered by the internal combustion engine; oil and gas companies whose reserves are under 70% natural gas reserves; companies that derive more than 10% of turnover from the production of energy intensive materials
- Deforestation - the fund excludes forestry and paper companies that do not have policies and practices in place to ensure that forests are managed in a sustainable way (e.g. the Forest Stewardship Council or similar certification schemes). It also excludes companies that are involved in the deforestation of primary or virgin forest or illegal logging practices
- Infrastructure projects - the fund excludes companies that are directly involved in the construction of large dam projects in developing countries if those projects have not met the World Commissions on Dams Guidelines. It will only invest in companies involved in the building of large scale infrastructure projects such as roads, airports or dams if they are viewed as leaders within their sector with respect to stakeholder dialogue, environmental management and social and environmental impact assessment
- Ozone depleting substances - the fund excludes companies that derive more than 10% of turnover from the manufacture or sale of ozone depleting substances
Gambling - the fund excludes companies that derive more than 10% of turnover from the management or ownership of gambling facilities - Genetic engineering - the fund excludes companies involved in the uncontrolled release of genetically engineered organisms into the environment
- Human rights - the fund excludes any companies that consistently violate international human rights standards
- Intensive farming - the fund excludes companies that derive more than 10% of turnover from the manufacture of chemical pesticides; more than 10% of turnover from intensive meat farming; or more than 10% of turnover from the fur trade
- Nuclear power - the fund excludes companies that derive more than 10% of turnover from owning or operating nuclear power stations, unless the company has made signification investment (more than 10% generation capacity) in renewable energy and does not have the option to divest their nuclear capacity. It further excludes companies that derive more than 10% of turnover from uranium mining or reprocessing of nuclear fuel; and companies that derive more than 10% of turnover from the development or manufacture of non-safety related products for nuclear power plants
- Pornography - the fund excludes companies that derive more than 10% of turnover from the production or distribution of pornographic material. It further excludes companies that derive more than 10% of turnover from owning or operating adult establishments
- Tobacco - the fund excludes companies that derive more than 10% of turnover from the manufacture or sale of tobacco products
- Weapons systems - the fund excludes companies that derive more than 10% of turnover from the manufacture or sale of armaments, weapons systems or critical components of weapon systems
Voting
The fund applies the 'Aviva Investors Corporate Governance' policy. This policy requires adherence to the best-practice codes of conduct on composition of the board, tenure of director appointments, and remuneration structures and requires UK FTSE 100 companies, and those mid-cap companies in environmentally sensitive areas to publish a robust environmental report as part of the company's annual report and accounts. If such a report is not forthcoming, Aviva Investors will vote against accepting that company's report and accounts at their AGM. Aviva Investors also maintain the right to vote against environmentally or socially damaging proposals where they believe the company is exposing itself to unnecessary risk.
In 2007 Aviva Investors (then Morley Fund Management) voted at 482 AGMs for FTSE 350 and FTSE EuroFirst 300 Index companies. Of those it voted against or abstained on approving a company’s Reports and Accounts for 88 companies based on ESG criteria.
The funds’ voting practice is disclosed online.
Engagement
The funds engage with companies on environmental, social and corporate governance policies. The main engagement themes are currently climate change, human rights, environment and safety, transparency and globalisation.
Engagement takes the form of meetings with companies, site visits and correspondence via letters, emails and phone calls.
In a recent example of engagement, an Aviva Investors-led group of 38 members of the international investor coalition wrote to the CEOs of 130 major listed companies (all of which are signatories to the UN Global Compact) with a set of 10 principles of corporate responsibility. By joining the UN Global Compact the companies commit to produce an annual corporate responsibility report known as a ‘Communication on Progress’ (COP).
Twenty-five of the companies have been praised by the investors for producing a notably high-quality COP such as Allianz SE and Starbucks, while over 100 companies were singled out as laggards in this area for failing to submit any COP this year. Laggards include companies such as Severn Trent plc and LVMH.
More generally, if a company fails to respond to raised issues, the fund manager may use its shareholder vote to encourage change. The fund manager would consider filing resolutions on social, environmental and governance issues where it feels that management failure to address an issue jeopardises the interests of shareholders. Aviva Investors may exclude companies from its portfolios on the basis of poor management of social, environmental governance issues regardless.
Research
Research is conducted in-house by a team of SRI analysts. An independent committee is in place to review research, while the sustainability ratings are reviewed on a quarterly basis.
Divestment Policy
If a company's product or management rating is downgraded and no longer meets the minimum criteria for investment in the Sustainable Future funds, the fund managers must sell the stock within six months. Where applicable the manager will engage with a company before divesting to see if it can get a commitment from management.
Up to date info found
Company Info
Fund Provider
Aviva Investors UK Funds Ltd
Fund Manager
Peter Michaelis
Website
http://www.avivainvestors.co.uk/
fundandsalessupport@avivainvestors.co.uk
Phone
0800 0154 773
Fund Type
OEIC
Sector
UK All Companies
Launch Date
May 1999
Aviva Investors UK Ethical Equity Fund
Fund Size £
£202.1m (12/09)
Charges
| Initial Charge | 5.00% |
|---|---|
| Annual Charge | 1.50% |
| Exit Free | no |
Products
| Products Available | Min Lump Sum (£) | Min Monthly (£) |
|---|---|---|
| Unit Trust/OEIC | £1000 | £50 |
| ISA | £1000 | £50 |
Top Holdings
| 1 | BG Group |
|---|---|
| 2 | HSBC Holdings PLC (UK Reg) |
| 3 | Prudential |
| 4 | Lonmin |
| 5 | Informa |
| 6 | Pearson |
| 7 | Smiths Group |
| 8 | Centrica |
| 9 | Inmarsat |
| 10 | Lloyds Banking Group |
Asset Allocation
| Equities | 88.5% |
|---|---|
| Bonds | 0 |
| Cash | 1.5% |
Sector Weighting
| Non Classified | 1.09% |
|---|---|
| Consumer Goods | 1.66% |
| Healthcare | 3.75% |
| Utilities | 3.77% |
| Telecommunications | 4.12% |
| Basic Materials | 5.03% |
| Technology | 5.97% |
| Oil & Gas | 13.44% |
| Consumer Services | 14.80% |
| Industrials | 18.52% |
| Financials | 27.86% |
Company Info
Fund Provider
Aviva Investors UK Funds Ltd
Fund Manager
Peter Michaelis
Website
http://www.avivainvestors.co.uk/
fundandsalessupport@avivainvestors.co.uk
Phone
0800 0154 773
Fund Type
OEIC
Sector
UK All Companies
Launch Date
May 1999
