The aim of the Individual Savings Accounts when they were launched in 1999 was to encourage people to save or invest through a tax-free account.
But did you know that there are ways that your Isa could benefit more than just yourself?
While you’re saving or investing for your future — whether that be to buy a house, take the holiday of a lifetime, or just for a rainy day — you can also be making a positive difference to people and the planet.
You see, the money that you save through an Isa isn’t locked away in a bank vault. For a cash ISA, your bank or building society will add it to the pot of money that they lend out to businesses, organisations or individuals who want a loan.
With an investment ISA, the money is invested in the stock market (stocks and shares ISA) or directly in an organisation (the more high-risk Innovative Finance ISA).
And this is where the impact lies. As you grow your savings pot, behind the scenes your money could be supporting a large company listed on the stock exchange that is making greener and more efficient public transport, or it could be lent to a homeowner looking to improve the energy efficiency of their home.
You have an element of control over what your money is used for, as you can pick from the hundreds of providers offering ISAs.
But how do you get started on finding a sustainable option, and how do you cut through the so-called ‘greenwash’? Here are some questions to consider.
What are you saving for?
Mapping out your short and long-term goals is a great place to start. Once these are clear, it’s easier to grasp what you want your Isa to do.
For example, if you might need to access money quickly in the next couple of years, you might want to focus on cash Isas.
If you’ve got some money that you’re happy to put away for five years or more, an investment ISA could give you a better chance of making returns above the rate of inflation.
It’s important to remember that with all investing your capital is at risk and the value of an investment may go down as well as up.
Interest rates or rates of investment return are important, but they aren’t the sole factor to consider when choosing an ethical ISA.
In fact, in a recent survey, we found that as many as six in ten people who had started investing in the last 12 months would be happy to settle for lower returns to invest in industries they really believe in.
What do you want your money to support, or avoid?
Once you’ve decided which type of ISA is right for you (and do contact an Independent Financial Adviser if you’re unsure), it’s time to start thinking about your values.
This might be linked to how you live your everyday life, the job you do, or the future world that you want for your family. For example, if you’re a doctor or nurse working to support cancer patients, you might want to avoid investments in tobacco. Many of us want to support a faster transition to clean energy.
More recently, you may have been considering whether your savings and investments are supporting Russia and the Putin regime.
Last year we asked 2,000 people how they would feel if their money was invested in certain sectors. Healthcare and sustainable energy came out as the sectors most people would like to support; tobacco and gambling were the areas that most people wanted to avoid.
Ethical means something different to all of us, so it’s worth spending some time to consider what it looks like for you personally.
How can you match your values with a bank, building society or investment manager?
If you already have an ISA, the first step is to find out whether your current provider matches with your values. Take a look on their website, to see if you can find their lending or investment policy.
Sometimes this can be a bit hard to find, as some financial providers aren’t very transparent, so check third-party organisations such as Ethical Consumer, who do the hard work for you.
‘The finance sector can help, not hinder, efforts to combat climate change’
Sunit Bagree, 42, from Brighton, wanted to make sure his money was working for the greater good. It is not good enough, he believes, for the impact to be neutral.
Why is it important for you to invest ethically?
I want my investments to work for people and planet. Not only do I not want my investments to facilitate the violation of human rights or destruction of the environment, but also I want them to have a positive impact.
I personally think it’s not good enough to be neutral. I want investments that promote sustainable development and help reduce inequalities.
What sectors in society would you like your money to support the most?
Global poverty, human rights, peace and environmental sustainability — to name a few. I am a committed internationalist.
In the UK specifically, energy, agriculture and housing strongly relate to the climate emergency and I would like to see more investment options that help in those areas.
What impact has news and awareness of the climate emergency had on your investment decisions?
I’ve been quite mindful of the climate emergency since the 1990s. I’ve worked in the international affairs sector for quite a while — as a professional since 2003 and for even longer as a volunteer.
My awareness of global heating has certainly increased over the years, and I believe it’s vital that the finance sector helps rather than hinders efforts to combat the climate emergency.
Ethical Consumer is a research and campaign organisation based in Manchester, which publishes information on the social, ethical and environmental behaviour of companies.
The team have produced guides on cash Isas, stocks and shares Isas and innovative finance ISAs — so you can see where your current provider ranks. Importantly they also look at the bigger picture behind financial providers, their ownership and behaviour.
Looking out for B Corporation-certified financial providers is also a good place to start. In the case of investment ISAs, the past year has seen a new generation of purpose-led investors coming to financial providers with a greater expectation of sustainable and impact investing.
It is not unreasonable to ask any fund manager now to conduct in-depth research into each company in a fund to make sure every single investment aligns with your values and personal ESG (environmental, social and governance) criteria. You could be part of a generational shift, which has the potential to disrupt the investment management industry.
Our recent polling found that 83% of people with investments would expect or want to see their fund manager upskilling in sustainability and environmental issues. The research demonstrates that the majority of investors are looking for this active stewardship from their investment managers.
How can you switch?
If you already have an ISA and want to switch it to a more sustainable provider, it’s important to do it in the correct way so that you retain the tax benefits. Most will ask you to open an account and then complete a transfer form to move your money across.
Focus on: Impact Investing
Impact investing, including investing in a stocks and shares Isa, connects investors with innovative entrepreneurs and businesses working to create a better world.
Actively investing can pave the way to a positive future — here’s a round-up of reasons why investors have chosen to invest with impact.
To address global challenges
Pressures on the environment, the prospect of irreversible climate change, and a rising number of people who are denied the means to fulfil basic needs, require a fundamental change in the way we live and how we invest.
There is an extraordinary opportunity to harness a growing wave of optimism and awareness as more and more investors are looking for a long-term partner with whom to invest.
Longer financial performance
Studies show that, in the long term, the performance of impact investing offers either a similar financial performance or outperforms traditional investments, but with the addition of creating real value and adding to a better quality of life.
Full transparency means knowing exactly where money is invested and what it is doing. It advances accountability of fund managers and additional stakeholders, while promoting a new way of working in the financial industry.
Look out for funds that publish a full list of companies in the portfolio, not just the top five holdings.
It’s also a great idea to let your existing bank or investment provider know why you’re leaving — so consider writing them an email or letter.
Only by showing that there is growing customer demand for more sustainable finance will we be able to encourage all banks and financial providers on their sustainability journey.
Bevis Watts is CEO of Triodos Bank UK.
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