Most of us like to think we are doing our bit for the environment. We recycle our wine bottles, tut about the excess packaging the supermarkets use and think about ditching our gas-guzzling Range Rovers for bio-fuel powered Saabs – but what of our finances? How green are they? And to what extent are we really prepared to put the planet ahead of our own profits?
These are questions to think carefully about, because if you decide to invest ethically, odds are you are going to make less money than you would like: according to a survey by Life and Pensions Moneyfacts, on average, ethical funds underperform their less-worthy competitors.
Still, that doesn’t mean the financial-services industry doesn’t still see mileage in the sector. There are now 70 ethical funds on the market, in which a huge £5.5bn has been invested. Some are more ethical than others – ‘light green funds’, for example, will avoid tobacco firms, arms manufacturers and companies that test on animals, but invest in the oil and pharmaceutical firms that ‘dark green funds’ won’t touch – and some are also rather better than others. But F&C’s Stewardship funds are good performers, says Paula Hawkins in The Times. F&C Stewardship Growth, for example, is up 78% over the past three years.
So should you think about investing? We aren’t convinced. For starters, there is the question of what ‘ethical’ really means. If you won’t invest in an oil firm, should you be investing in firms that use any oil? And surely firms that test on animals are intimately linked to pharma¬ceutical firms, so why is one acceptable, but not the other? Still, morality isn’t our brief at MoneyWeek, so we would point more to the fact that performance in the ethical sector is volatile. They were, for example, heavily invested in technology firms in 2000, so suffered more than most, and are now invested in alterna¬tive energy, which is benefiting from the high oil price but is still a small, speculative sector.
Outside funds, there are a few other ways to make your money greener. You could, for example, opt to move your accounts to the Co-operative Bank, or better still, to its internet bank, Smile, which pays 3.04% on credit balances and offers a £500 free overdraft. Other green banks – the Ecology building society and Triodos bank – don’t offer current accounts and, if you want a savings account with them, once again you have to face the fact that you are going to lose out on the rate: the Triodos social investor account pays only up to 3.78%. Or you can take out an ethical mortgage with the Co-operative Bank, Smile, or the Ecology building society. Finally, Norwich & Peterborough offers a mortgage where it commits to planting 40 trees over five years when you take one out. The downside? The expense. The bank offers a four-year fix at a very uncompetitive 4.88%.