There are lots of reasons to expect our money to grow up, stand tall, stride out and find its voice this year.
We predict that general world awfulness (Saudia Arabia and Iran, for example) as well as stock market falls caused by further oil price and commodities shocks, will contribute to a bit of a money awakening among normal punters keen to sort things out a bit themselves. Money will go more local, more socially beneficial and more green but on the understanding that this isn’t charity giving – it’s money, and we want good value with our values, thanks very much.
Here are six ways money is set to change for good in 2016:
Yes, it’s a bit of a tongue twister, and while the purpose of this new investment wrapper that will grant tax-free status to peer-to-peer loans and some debt-based crowdfunds is not goodness as such, the effect will be that more ISA money moves to platforms such as Abundance Investments (renewable energy), Zopa and Ratesetter (personal borrowers) and the Lending Crowd (small enterprises) – away from bland and sometimes morally vacuous funds. The current total ISA annual limit is £15,240. And returns come in at anything between 4 and 8 per cent typically, with varying degrees of risk, so not much, if any, compromise on returns from a Stocks and Shares ISA and much better than cash.
2. Triodos current account
Will they or won’t they really do it this year? It has been mooted for some time and there are great expectations among green folk. Too much anticipation might be part of the problem – a lot of demand would be hard for them to cope with at launch. While it does seem more likely this year, if you want to switch your current account to a less environmentally and socially awful option than a Big Four bank, then the Co-op or Nationwide remain the best choices.
3. Morningstar launch of ESG scores for investment funds
71 per cent of individual investors are interested in sustainable investing. Last year, there was a 29 per cent increase in the number of financial institutions that signed the United Nations-supported Principles for Responsible Investment (PRI) Initiative. So Morningstar, in its decision to launch ESG scores for funds, is going with the flow. It’s only a surprise that more aren’t. We’d like to see more UK-based investment platforms follow this lead and introduce ESG alongside performance and risk as key criteria by which investors might wish to make their decisions. Because use it, they will.
4. Expansion of social investment
Social investment into charities and social enterprises among normal investors is expected to grow this year, as returns and tax breaks on other alternative investments – such as buy to let, fall away.
The Government is expected to raise the limit on investment amounts eligible for Social Investment Tax Relief of 30%, among other sweeteners. SITR is a bit like Enterprise Investment Scheme relief for small businesses – introduced in the hope that private investors will be tempted in to help the Government plug the gap left by spending cutbacks.
You can buy social impact bonds as well as shares in community benefit societies on Ethex, a not-for-profit investment platform, meanwhile the Social Stock Exchange is a new platform for social investing, with 31 companies now listed at a combined market capitalisation of nearly £2 billion. More social investment opportunities are listed on the Big Society Capital website here, such as the UK Social Bond Fund from Colombia Threadneedle Investments.
5. Challenger banks
Although they are not making much of an ethical play, the very existence of challengers to the banking old guard (and a similar competition boost in the energy market too) should encourage better treatment of customers and more of a focus on what people want from their providers (which could mean more socially and environmentally responsible products, if we shout about it enough). Metro and Handlesbanken are already nicely established on high streets around the country and will be joined by digital banks Atom (based in Durham – taking financial services to the North East is already a social tick) and Mondo soon, too.
6. Divestment
The train has left the station and divestment from fossil fuels among some significant asset managers is now a thing proper.
$3.4 trillion by 499 institutions globally have committed to divesting either fully or partially, according to 350.org, the divestment campaign group.
The sums involved are huge and in most cases, the trustees and fund managers are doing it because they are responding to pressure from campaigners and feel duty bound by the glaring science of climate change – it certainly helps that returns from cleaner companies now regularly match or beat those from their dirty counterparts, especially in the face of falling oil prices.
There’s around $74 trillion assets under management globally, according to Boston Consulting, so this sum, although it includes family trusts that might not be included in the Boston report, would represent about 5 per cent. Not bad – and the trend is set to gather pace this year as more and more companies are forced to disclose the carbon damage they are causing, as well as the associated implications for investors.
