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
CIS Sustainable Diversified Trust
The CIS Sustainable Diversified Trust is available to retail investors as a unit trust, ISA or personal pension plan. The fund invests in a mix of assets including equities, bonds and cash.
In order to qualify for investment, the majority of companies need to be involved wholly or in part in the manufacture of products, industrial processes or the provision of services associated with improving the environment and the enhancement of human health and safety and quality of life. Companies showing leadership in managing their ESG impacts are also considered for the fund.
The fund has both positive and negative inclusion criteria. A best in sector approach is additionally used by the fund. The fund also applies the Co-operative Investments’ Ethical Engagement Policy to its investment decisions.
The Environmental, Social and Governance (ESG) research team review all new equity and bond holdings.
Company Info
Fund Provider
Co-operative Investments (Retail customers), Co-operative Asset Management (Intermediary market)
Fund Manager
Linda Desforges
Website
http://www.co-operativeinvestments.co.uk/
Phone
08457 46 46 46
Fund Type
Unit Trust
Sector
IMA Cautious Managed
Launch Date
24 July 2009
CIS Sustainable Diversified Trust
Positive Screening
Activities qualifying for investment include the manufacture of products, industrial processes or the provision of services associated with improving the environment and the enhancement of human health and safety.
Examples of companies in which the Trust seeks to invest:
- Environment - renewable energy, new technologies, environmental products
- Human Health & Safety - pharmaceuticals, scientific & educational publishing
- Social - education, training and employment, telecommunications, sustainable housing
Companies may qualify if they promote awareness of these issues amongst the general public or are likely to be beneficiaries, in the medium-to-long term, of changing attitudes in favour of a cleaner and safer environment. Consideration is also given to companies seen to be making above-average efforts to minimise environmental damage caused by their activities.
Negative Screening
Once a company has been selected on the basis of the fund's positive criteria, it is screened to establish whether it is active in the areas which the fund seeks to avoid.
Sustainable Diversified Trust avoids investing in companies which:
- cause significant environmental damage
- derive a significant proportion of business (up to 10%) from:
- countries where human rights are disregarded
- tobacco production
- military applications
- products tested on animals (other than for human or animal health)
- animal fur products
- pornography
- irresponsible gambling
- irresponsible drinking
- worker exploitation
- exploitative consumer practices
or that:
Voting
The Co-operative Investments undertakes a programme in relation to corporate governance, which it applies equally to the Sustainable Diversified Trust as much as to other funds. Since the policy’s inception in 1999, The Co-operative has been an active shareholder and has exercised its vote on every motion at every general meeting of every company in which shares are held where allowed.
In general, The Co-operative Investments will vote "for" if the resolution is consistent with its guidelines, accords with best practice and is in shareholders' long term interests. It will, however, abstain if the resolution falls short of best practice, but the issue is not sufficiently material to oppose management. Votes “against” arise when the resolution is inconsistent with The Co-operative Investments’ guidelines, does not accord with best practice and is not in shareholders' long term interests.
Recent examples of voting activity include:
- tactical voting at M&S' September 2008 AGM on the grounds of a poor governance issue and 'golden hello' payment
- taking part, through the UNPRI, in being one of two UK institutional investors to support a shareholder resolution at the 2009 AGMs of 8 Swiss companies, calling for shareholders to have the right to vote on share based incentive schemes and remuneration reports, in line with practice in the UK and elsewhere.
The Co-operative Investments’ voting guidelines document along with a searchable voting history record is available on the company website. The Co-operative Asset Management* was the first UK investor to publish its voting record in 2002.
*The Co-operative Asset Management has been independently authorised and regulated since August 2009 and was previously part of Co-operative Insurance Society Limited and its subsidiary companies.
Engagement
The Sustainable Diversified Trust works in tandem with The Co-operative Investments Ethical Engagement policy, which applies to all of The Co-operative's equity investments. It also applies an ethical engagement policy to its corporate bond holdings.
The Co-operative Investments defines engagement as pursuing a point of difference with a company. Broadly the aim of responsible shareholding is to increase social accountability on the part of companies in which we have shares, through engagement and by using the Company's voting rights at AGMs (Annual General Meetings). If engagement does not yield satisfactory results it is necessary for the company in question to be removed from the approved list for investment.
To do this the fund's management might send letters to chief executives, investor relations managers or managers concerned with specific interests or engage in telephone dialogue. Meetings occur with key personnel as part of the investigations conducted by the fund manager or as part of broader initiatives undertaken by the Responsible Investments Unit.
The Co-operative Investments collaborates with other investors on matters such as climate change and human rights. The Co-operative Investments is a signatory to UNPRI and uses the UNPRI engagement clearing house to identify global engagement initiatives for example co-signing letters to company management
Examples of engagement include challenging Aggreko on its human rights policy and related risks. Another example is challenging Intel Corporation on governance practice relating to the replacement of physical AGMs with web-based events, which The Co-operative Investments believes could lead to corporations using virtual meetings as a means to limit shareholder input.
If engagement does not yield satisfactory results it is necessary for the company in question to be removed from the approved list for investment.
Research
The fund's research is conducted in-house by the Internal ESG team and Equities Analyst with regard to research from a number of external bodies including EIRIS, Innovest, PIRC, IVIS, PRI and GIGN. All holdings are reviewed twice a year to ensure continued compliance with the Trust’s positive and negative criteria.
The Trust benefits from advice from independent experts on the suitability of investments on ESG grounds. These experts also offer insight on ESG policy issues such as human rights and climate change.
Divestment Policy
The Co-operative Investments has an exclusions process governed by an internal committee. If a stock is considered unsuitable for investment on the grounds of poor governance, environmental or social risk management, where these risks are considered to be financially material and it is not considered that new or additional engagement is likely to prove successful, on the instruction of the committee the Head of Equities will instruct an orderly divestment from the stock across all portfolios. The fund manager has a period of 6 months in which to conduct an orderly divestment.
Up to date info found
Retail customers: www.co-operativeinvestments.co.uk
IFAs: www.co-operativeassetmanagement.co.uk
Retail customers call the Customer Contact Centre on 08457 46 46 46 (IFAs use this for account information/ holding valuations/ letters of authority). IFAs call Broker support: 0845 603 9986 (for research, sales & performance).
Company Info
Fund Provider
Co-operative Investments (Retail customers), Co-operative Asset Management (Intermediary market)
Fund Manager
Linda Desforges
Website
http://www.co-operativeinvestments.co.uk/
Phone
08457 46 46 46
Fund Type
Unit Trust
Sector
IMA Cautious Managed
Launch Date
24 July 2009
CIS Sustainable Diversified Trust
Fund Size £
£79m (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 |
| Personal Pension Plan | £1000 | £50 |
Top Holdings
| 1 | HSBC Holdings |
|---|---|
| 2 | Standard Chartered |
| 3 | Smiths Group |
| 4 | Tesco |
| 5 | GlaxoSmithKline |
| 6 | Barclays Bank |
| 7 | Impax Environmental Markets |
| 8 | First State Investments |
| 9 | Vodafone Group |
| 10 | Rabobank Nederland |
Asset Allocation
| Equities | 58.6% |
|---|---|
| Bonds | 40.3% |
| Cash | 1.1% |
Sector Weighting
| Cash | 1.10% |
|---|---|
| Technology | 2.60% |
| Telecommunications | 3.00% |
| Other | 3.70% |
| Consumer Goods | 4.00% |
| Utilities | 4.20% |
| Health Care | 4.90% |
| Basic Materials | 5.50% |
| Consumer Services | 6.40% |
| Industrials | 10.30% |
| Financials | 13.90% |
| Fixed Income | 40.30% |
Company Info
Fund Provider
Co-operative Investments (Retail customers), Co-operative Asset Management (Intermediary market)
Fund Manager
Linda Desforges
Website
http://www.co-operativeinvestments.co.uk/
Phone
08457 46 46 46
Fund Type
Unit Trust
Sector
IMA Cautious Managed
Launch Date
24 July 2009
