This article is from the Good Guide to Impact Investing, free to download here.
Choosing the right impact investment for you can and should be fun. Ask yourself what kind of an impact would you like to make? Are you passionate about fighting climate change, promoting biodiversity, reducing poverty, or strengthening local communities, for example?
Look for an investment that aligns your money with your ethical values and gets you excited. When you find one you like the look of, it is worth:
1. Reading their impact reports
2. Visiting the websites of some of their biggest holdings (the companies they invest in)
Positive fund, not so positive manager?
You might also want to consider the overall commitment of the fund manager to positive impact, not just the fund. Many big asset managers that are heavily invested in the bad stuff as a business overall now have impact funds. This is a good development, but the fund may represent a tiny fraction of their overall Assets Under Management (AUM – or the money they look after).
This may not sit well with you (it doesn’t much with us either). If that’s the case, choose a fund manager that SPECIALISES in positive impact – or embeds the approach across the business – to sift out some of the larger asset management houses.
You also need to think about your personal financial needs and goals:
- How much do you want to invest?
- How long do you want to invest for?
- What sort of return are you looking for?
Information about funds
The Good Investment Review is packed full of information about some of the top-rated ethical and sustainable funds available to UK investors.
The Big Exchange, co-founded by The Big Issue, only lists positive impact funds that are actively-managed. Each fund on the platform is awarded a gold, silver or bronze medal according to the level of positive impact it achieves.
Interactive Investor is a large investment platform that has usefully categorised ethical and sustainable funds into three baskets: “Avoids, Considers, Embraces”, depending on the extent to which they engage with environmental and social concerns as part of their process. The “Embrace” selection of funds contains impact funds.
Other big investment platforms, such as Hargreaves Lansdown, AJ Bell and Charles Stanley offer search filters that show positive impact funds available in the UK.
Projects, funds and crowdfunds
Guide co-sponsor Ethex is an absolute gem for impact investors. It offers opportunities to invest directly in extraordinary organisations in the UK in key themes such as renewable energy, affordable homes, sustainable farming and ethical finance. You can see real life examples of the impact Ethex is making in our full guide.
Its latest report “10 Years of Making Money Do Good” reveals the incredible impact its investors have made. Since 2013, Ethex has helped more than 26,000 positive investors raise over £120 million by backing around 200 projects – that’s a lot of people-powered finance!
Ethex also lists impact products provided by other groups. On its funds list you can find the FP WHEB Sustainability Impact Fund, which invests in opportunities created by the move to a low carbon and sustainable global economy.
Its sister platform Energise Africa allows you to invest from £50 in bonds that help ethical businesses in Africa and beyond to accelerate achievement of the SDGs, including supplying life-changing solar energy to homes and businesses.
Triodos Crowdfunding also offers you the opportunity to invest in organisations making a positive impact socially, culturally and environmentally.
Impact via apps
Money app Moneybox has a range of ‘socially responsible’ funds that take into account companies’ records on ESG (environmental, social and governance) such as how they respond to climate change, treat their workers and manage their supply chains.
Wealthify offers five Ethical Plans – separated to match different risk appetites – with funds from respected providers including Kames Capital and EdenTree.
The Good Egg
You will also find a list of top-rated fund managers and advisers at Good With Money’s Good Egg page, where we list companies awarded the Good Egg mark. The mark means they can prove they make a positive difference to the planet and people, as well as to their
customers and staff.
Assessing an impact fund
This is the tricky bit. How do you know who to really trust with your money? While the industry adapts to new FCA rules on greenwash, it’s always worth a little homework yourself.
Areas to look at when assessing a fund are:
- The companies it invests in
transparency (you should be able to see more than just the top 10 holdings) - Frequency of reporting
- Depth of information given
If you don’t have the time to do the research yourself, again the Good Investment Review is a fantastic source of reliable information, with funds rated against the ‘3D Framework’ of ‘Do good’, ‘Avoid harm’ and ‘Lead change’.
Impact wealth managers and advisers
When you’ve got a pot of cash to invest, you might want a bit more input from a professional about what to do with it.
That’s where wealth managers and financial advisers come in. Generally speaking, their fees mean that it only makes financial sense to use an adviser if you have quite a bit of money – around £50,000 ish – to invest. But that’s not always the case and even if it is less than that, it can be worth seeing whether you can have a short initial (free) consultation. Try our Good Egg companies: EQ Investors, Switchfoot Wealth and Path Financial.
According to the FCA, financial advisors charge an average initial fee of 2.4 per cent of your investment and 0.8 per cent a year for ongoing advice. As well as our Good Eggs, check out our ‘Top ethical financial advisers’ and the Good With Money Directory for a solid starting point.
Investing directly into impact projects and companies
Investing in just one company or project is, typically, more risky than investing in lots of companies. However, your money may also have a bigger impact. In smaller projects, a few hundred pounds can make a big difference to communities, often enabling them to survive and thrive.
Investing in small organisations not listed on main stock markets (unlisted) has become much more accessible in recent years, with platforms including Ethex, Energise Africa and Triodos Crowdfunding allowing investors to put money directly into projects for low minimum amounts.
The types of opportunities on offer can range from small solar to huge hydropower projects, funding a local community centre, creating community-owned affordable homes or backing a sustainable brewery. Many of these investments are eligible for inclusion in the Innovative Finance ISA, meaning investors can also keep their gains completely tax-free. As these types of investments are high risk, the FCA recommends investors not put more than 10 per cent of their investible wealth into unlisted companies or projects in any one year.
Risk warning: All investments carry risk. The value of your investment may go down as well as up, and you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Consider seeking independent financial advice before making any investment decisions.
