This article is from our Good ISA Guide 2022, which shows you how to invest your ISA for the good of people and planet as well as your own future.
People have always wanted good investments. But now more than ever they want their investments not just to be good but to do good too. That’s where we can come in. At Path Financial we are passionate about helping our customers align their Individual Savings Account (ISA) and pension investments with their high ethical standards and values. We call this “impact investment”. It’s all we do. We are experts and leaders. Importantly, by empowering choice we give consumers a loud voice in helping them influence company behaviour, shaping the future they want to see.
An ethical and positive impact ISA
We will go on to look at why ISAs are such a good investment and why they are a key component in any savings strategy. Before we do that, let’s pause for a moment to consider the impact and influence an ISA contribution can have on the planet and its people. If you are reading this, we assume you are a caring consumer looking to have more mindful money.
In terms of carbon alone, the reduction in CO2e between directing just one year’s ISA input to a low carbon portfolio with Path Financial compared to a traditional investment could be as much as six tonnes. That is way more than the emissions of an average car over a year (source: WHEB). And there are other benefits too such as promoting a circular economy, water and waste recycling and helping people out of poverty.
We go way beyond traditional “ethical investment” which tends to merely screen out major controversies such as tobacco, weapons and alcohol (but not necessarily screening out oil and coal). Instead, we positively seek out investments which are providing solutions for people and planet.
That is to say, investments that are contributing to the achievement of the United Nations’ Sustainable Development Goals. We do this with a rigorous investment management approach which looks at the entire investment fund universe to source and blend together the best performing of the deepest green funds. This process is designed to provide superior investment returns. We feel that this seems inevitable where a portfolio avoids dying dinosaur industries and supports solutions and a better future.
We are pioneering the future of impact investment. In 2021, to align with COP26, we were proud to introduce the UK’s first Climate Solutions Portfolio. As the number of investment funds with positive impact credentials increases, we are at the forefront of making specialist portfolios available to investors who want to address specific issues.
When most people think about ISAs they think about tax-free bank accounts, so-called “Cash ISAs”. With interest rates as low as they are at the moment this does not make for the most compelling or exciting drive to action! Indeed you would need to have a large ISA investment in a Cash ISA even to be reaching the tax threshold for returns from an interest bearing deposit account. As a result, many people don’t even bother to use their ISA allowance at all. “What’s the point?” they say, returns are low and the tax-savings are minimal.
Well, the point is that an ISA does not have to be in cash – it could be in a “Stocks and Shares” ISA. A well-designed and diversified portfolio can give better investment returns over the long-term; should be a good way to beat inflation investment and can be more “green”.
Bear in mind that with a stocks and shares investment there are usually two elements to the investment return: capital growth (i.e. share prices going up) and dividend income (the share of profits paid to investors for holding the shares).
- ISAs are exempt from capital gains tax. This is the part that many people know about already. This is important since, as the portfolio gets bigger it means that there is no tax whatsoever on the growth.
- Less well known is the fact that ISAs can give you a tax-free income from the dividends that they receive on shares held in the funds in your portfolio. Dividends tend to be far, far higher than the interest rates available from banks and are usually very stable regardless of share prices. Dividends also tend to go up over the longer term. So, ISAs are a great way to supplement pensions with a tax-free income.
- Investments into stocks and shares tend to be a good way to protect against the ravages of inflation. A lot of people don’t think about inflation but if the price of things is going up by, say 5per cent a year and you are only getting a 1per cent interest rate then you are impacted in real terms with a -4 per cent interest rate – the purchasing power of your money is falling. With stocks and shares investment over time the returns tend to be above inflation.
- With a possible input of £20,000 per annum or £40,000 for a couple, it is possible to quickly amass a large pot. It is vital that ISA allowances are used every year that you can afford to, since the allowances are “use-it-or-lose-it” in each tax year. With a regular maximum contribution for 10 years or so and some decent growth, a fund could easily have grown to £250 thousand for an individual or £500 thousand for a couple.
Stocks and Shares ISAs are available to UK-resident individuals aged over 18.
Your future and the future for the planet and its people
We would be delighted to talk with you about how to align your investments with your own values and attitudes to investment risk. We can show you how an ISA fits in with a strategic financial plan to ensure you and your loved ones get ultimate financial security. We can also talk about a higher purpose where you do well by doing good.
Risk warning: Your capital is at risk, losses from investments are not covered by the Financial Services Compensation Scheme and past performance is not a guide to future performance. Tax treatment is dependent on individual circumstances and is subject to change.