This is part of a new series from Good With Money on ‘How to green your ISA’, showing you how to make your tax-free ISA allowance work for the planet and people as well as your pocket.
Each year you can invest up to £20,000 in an Individual Savings Account (ISA) tax free. With a Lifetime ISA (LISA) you can invest up to £4,000 and the government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year (you need to be aged between 18 and 40 to open a LISA). The £4,000 will count towards your ISA allowance.
It might help to think of your stocks and shares ISA or LISA as a shopping basket and you get to choose which funds to put into it. Subscriptions for this year’s tax-free ISA allowance must be made before the end of this tax year is midnight on 5 April, 2021. Investments can be transferred from one fund into another and you can switch platforms too.
Using an ISA is a great way to invest and not have to pay tax on the gains made in any given year. Given the increased interest this year in climate change there’s no reason your ISA investments can’t match your hopes for the future of the planet.
However, with seemingly endless opportunities to invest your allowance, it can be hard to know which fund or funds to pick. We asked Teodor Dilov, Fund Analyst at interactive investor, which three green funds he likes the look of for your ISA or LISA.
The BMO Responsible UK Income fund uses both positive and negative screens to promote themes like climate change while weeding out businesses that profit from activities such as making alcoholic drinks, or are involved in the manufacture of genetically modified seeds or crops (among others).
Dilov says: “We like BMO Responsible UK Income, which at present offers a healthy yield of around 3.7 per cent. The fund, managed by Catherine Stanley, targets long-term income and growth by investing mainly in UK shares.
“What constitutes as ethical is determined by BMO’s responsible investing team, who also draw on an independent responsible investment advisory council which is presided over by Justin Welby, Archbishop of Canterbury.”
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The Royal London Sustainable Diversified Trust fund aims to grow your money over the medium term (three to five years) by investing in a diverse range of asset classes, mostly in the UK, that it sees as making a positive contribution to society.
Dilov says: “Managed by highly experienced Mike Fox, who spent most of his investing career assessing environmental, social and governance (ESG) issues and how they influence investment decisions, the ethical multi-asset fund filters out companies involved in common ethical investing ‘no-nos’, including tobacco, armaments and animal testing.
“In addition to a negative screen, a positive screen is also conducted. The manager assesses whether the company, through its products and services, provides a net benefit to society and/or whether it is a sector leader in terms of its ESG management. Sectors considered more favourably for the funds include healthcare and technology.
“The fund is a great example of why investing for good does not mean investors will miss out on returns. It has consistently outperformed both its benchmark and Investment Association sector average and ranks within the first quartile for cumulative performance over three and five years.”
This fund aims to achieve long-term growth through investing in equities (shares in companies). It does not invest in firms it describes as having “substantial interests” in sectors such as defence, gambling, mining, fossil fuels and tobacco.
“This could be a great alternative to Scottish Mortgage,” Dilov says. “It is an ethical proposition too, featuring on our ACE 40 list of rated ethical funds. The fund, managed by highly-regarded manager Terry Smith, who has won plaudits for the performance of his flagship Fundsmith Equity fund, targets long-term growth.
“It also avoids businesses that have substantial interests in any of the following sectors: Aerospace and Defence, Brewers, Distillers and Vintners, Casinos and Gaming, Gas and Electric Utilities, Metals and Mining, Oil, Gas and Consumable Fuels, Pornography, and Tobacco.
“The fund is young – only launching in 2017, but managed to grow up to £424 million in size. In its short history, the fund has outperformed the average return of funds in the Investment Association’s global sector.”