An ISA (Individual Savings Account) lets UK residents save or invest £20,000 each year without paying tax on any interest or investment income.
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 39 to open a LISA). The £4,000 will count towards your ISA allowance.
It can be helpful to think of a 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 (midnight on 5 April, 2024). Investments can be transferred from one fund into another and you can switch platforms too.
But if you don’t use your £20,000 allowance before the deadline, you lose it.
Using an ISA is a great way to invest and not have to pay tax on the gains made in any given year. Excitingly, it’s also possible for your ISA and LISA investments to 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 – especially when you add ethics into the mix.
We asked Dzmitry Lipski, Head of Funds Research at interactive investor, which three green funds he likes the look of for your ISA or LISA.
The M&G European Sustain Paris-Aligned Fund actively seeks to invest in companies with strong sustainable credentials that are committed to reducing their own carbon emissions or providing solutions for others to do so.
Companies must also be contributing to the goals of the Paris Agreement, which aims to limit the rise in global temperatures to well below 2°C above pre-industrial levels to avoid reaching an irreversible tipping point in the Earth’s climate. The fund has a concentrated portfolio and usually holds fewer than 35 companies. Current holdings include global diabetes care specialist Novo Nordisk, Schneider Electric and software provider SAP SE.
Dzmitry says: “Led by seasoned manager John William Olsen, this strategy consists of a balanced split of stable growth companies and higher risk opportunities. This allows an allocation to high-risk, high-reward companies while maintaining a smoother risk curve and managing volatility down. Olsen has a long-term track record of managing this strategy successfully, while actioning real-world carbon reduction.”
The Wellington Global Stewards Fund invests in companies around the world that display outstanding stewardship. It defines stewardship as ‘the effective balance of the interests of all stakeholders (these are customers, employees, communities and the supply chain), alongside proactive management of environmental, social and governance (ESG) risks and opportunities’.
The team believes such companies are better positioned to achieve high returns in the long-term by successfully investing in people and the planet to build sustainable profit.
It actively engages with the companies it invests in, holding those in charge to account and encouraging companies to commit to net zero carbon emissions targets in alignment with the Paris Agreement.
Dzmitry says: “Led by experienced co-managers Mark Mandel and Yolanda Courtines, the fund is able to leverage the extensive resources available on both the analysts and sustainability side at Wellington. As such, the team has successfully run the highly selective strategy since its inception in 2019.”
The Rathbone Ethical Bond fund invests in a minimum of 80 per cent in sterling bonds issued by companies, charities, the UK government and non-governmental organisations.
The fund’s ethical framework is provided by Rathbone Greenbank Investments, the dedicated ethical investment unit of Rathbones Asset Management.
Potential investee companies issuing bonds have to pass the ethical team’s negative screening tests and be approved by the fund’s ethical committee before they can be included.
Dzmitry says: “The fund has been managed by Bryn Jones, since November 2004, who also serves as Rathbone’s head of fixed income, and boasts extensive experience. Together with deputy manager Stuart Chilvers and three credit analysts, the team have demonstrated resilient long-term returns compared with peers.”