Top Ten Tips: Investing money ethically

PEOPLE are increasingly taking an interest in how their money is invested and the impact it has on our lives following the financial crisis and the growth of ethical consumerism.

Julian Parrott, of Edinburgh independent financial adviser Ethical Futures, offers his favourite tips on how to bring your money into line with your values.

Move your money

Most of us have a bank current account, so it’s the obvious place to start. Whether your concern is bankers’ bonuses or how your deposits are lent, think about moving your accounts to a socially responsible bank with ethical lending policies. The Co-operative Bank is the main contender with clearly established ethical credentials – but there is a growing range of alternatives. Check out the Move Your Money campaign www.moveyourmoney.org.uk or www.ethicalconsumer.org for more information.

Save for a better future

It may be easier for some to change where you save than change your current account. The choice of ethical savings accounts is growing considerably. As well as the Co-operative Bank there is Triodos Bank, which supports renewables, organics and community ventures. It’s also worth looking at the Ecology Building Society, the Charity Bank and thinking about local building societies like the Scottish Building Society and credit unions, who will help keep your money local.

Go Direct

The internet provides a way to by-pass traditional mediums and banking is no different; services such as Zopa, Funding Circle and Buzzbnk link up individual borrowers and savers. These services “pool” the money of both borrowers and savers so that risk for both parties is spread; they also provide credit scoring and payment services. Rates tend to be better than mainstream banks.

Make ALL your money change your world

Ethical finance isn’t limited to your bank and savings accounts – in fact, there is far more choice in terms of stock market-based ethical investments. You can have a fully ethically screened investment portfolio using investment options such as stocks & shares Isas, pensions and investment funds. Screening policies vary but most funds have some common avoidance themes. More information on ethical screening is available at www.yourethicalmoney.org

Invest in your children’s future

What sort of world would you like our next generation to grow up in? Think about an ethically invested Children’s Isa investing in responsibly run and sustainable businesses. What about pensions? It seems crazy but today’s children won’t get a pension until their 70s. You can give them a head start by investing an ethical pension for a child and get tax relief even though they don’t pay tax.

Think Positive

Ethical investment isn’t all about negatives – the trend in ethical investing is to seek positive reasons to invest. This includes investing in businesses that provide products and services of benefit to society from renewable energy and public transport to education and healthcare. Ethical and screened investments were pioneers of many initiatives such as renewables, fair trade, organic farming and mico-credit.

Get engaged

Recent shareholder protests about executive pay at companies including Barclays and Aviva are a great example of shareholder activism. By investing in a positively managed ethical fund, it’s likely that the managers of your money will actively “vote their shares” and “engage” in dialogue with the companies they invest in about a wide range of ethical, social and environmental issues.

The Social Dividend

Ethical investing can give a “social dividend” as well a financial one. The impacts of investments such as fair trade, sustainable forestry and micro-credit can make real improvements in the quality of life for people in developing countries. Organisations such as Charity Bank, Shared interest and Kiva enable investment into grassroots projects with a high social impact.

Needs and objectives

As with any other aspect of financial planning, ethical investment decisions should be based on a clear understanding of your own financial needs and objectives. Randomly picking a fund that meets your values doesn’t mean it will give you good returns or that it will meet your attitude to investment risk. So start with some clarity about your financial objectives.

Get good ‘ethical’ advice

If reflecting your values is important to you, then it’s sensible to engage an independent adviser to help you do this. Knowledge of ethical investment is gradually increasing amongst advisers but the best place to start is to look for a specialist in the field. The Ethical Investment Association has a directory of ethical specialist IFAs at www.ethicalinvestment.org.uk