Ethical investment gets personal

Link to article (Source: The Times Money, April 23, 2014)

Ethical investing, be it backing green projects or businesses that are "socially responsible", has often involved compromise. Some ethical funds stretch the green and SRI labels to the limit. Investors have had to take on trust that the companies in a fund portfolio are as ethical as claimed - and delving below the surface has often thrown up bones of contention.

However, innovations are providing fresh ways for ethical investors to put their money to work. The spread of crowdfunding, peer-to-peer lending and the prospect of social investment tax relief means investors who want to do their bit for society are being offered investments where they can personally see that they are making a real difference. The chance to back projects that, for some, brings a local touch to investing that otherwise isn’t there.

The crowdfunding platform Abundance Generation, for example, is offering a 7 per cent fixed return to investors who back the Engynious Schools project, which owns and manages solar panels on 19 UK schools. The return, to be paid every six months, comes from the government’s feed-in-tariff scheme and from selling electricity to the schools well below the price they would normally - at a 30 per cent discount, freeing up more money for educational purposes.

The project lasts for 19 years but investors may be able to sell their "debentures", a form of IOU, to others on the Abundance website during that time. The minimum investment is £5.

Greg Barker, Minister of State for Climate Change, has given the scheme his blessing.

He says: "Solar technology allows schools to cut their energy bills, while also giving children a terrific opportunity to learn more about renewable energy first-hand.

"The coalition's 's new solar strategy aims to install more than 1GW of solar across the whole government estate, including on our 24,000 schools. Crowdfunding is very much in the spirit of that initiative. I look forward to seeing more schools following suit in the coming year."

Another business raising money directly from investors is the farm that inspired the radio soap The Archers - the 150-acre organic and biodynamic Rush Farm in Worcestershire. The Stockwood Community Benefit Society is offering a return of 5 per cent and the minimum investment is £100.

Investors can expect to be targeted by many more projects like this in the future after it was announced in the budget that investors who put money towards social or charity projects will receive a generous tax break set at 30 per cent.

In addition to equity investments, social investment tax relief will be available on loans to social enterprises where certain conditions are met and on investments in social impact bonds. The Social Economy Alliance, which represents more than 100 organisations, says it could unlock billions of pounds for social projects, enterprises, cooperatives and trading charities.

All of which will bring some welcome variety to the world of ethical investing. However, the usual risk warnings apply. Invest in an ethical fund and you are backing a range of businesses. Invest in one of these schemes and you may be backing just one business and if that fails you may lose all of your capital.

Written by David Budworth