At a rate of 7.5 per cent, the wind is blowing behind ethical investors

A new initiative has financial and ethical virtues, says Simon Read
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The Independent Online

Could this be the year that social investment goes mainstream? Almost twice as many people will consider it this year, according to new figures showing that more of us than ever are looking away from traditional finance opportunities as we get fed up with unethical practices and want our cash to help do good rather than just boosting the huge City bonuses.

According to research from the ethical bank Triodos, 27 per cent of those planning to invest in 2015 are likely to choose the social investment sector – compared with a figure of just 15 per cent last year.

Meanwhile, more than half of 18 to 34-year-olds looking to invest in the next 12 months said they would invest in the social sector, compared with 26 per cent in 2014.

So it was perfect timing by Trillion Fund, a social crowdfunding platform, to launch a new peer-to-peer loan this week that will pay investors in wind energy a rate of 7.5 per cent if they put money in before the end of next month.

That's a temptingly high amount and it's possible because the platform links investors directly with the companies using the cash. By the same token it comes with a risk – that you could lose all your capital.

But with the opportunity to put in as little as £50, the deal taps into the growing demand for social investment and also gives people the chance to dip their toe in without endangering too much of their savings.

Julia Groves, chief executive of Trillion Fund, said: "People are attracted by the rate of return, but also the chance to invest in something real and beneficial to society. The opportunity to invest directly in renewable energy with as little as £50 is unique; most funds require a lot more as a minimum investment."

Lenders can help finance the installation of up to 10 new wind turbines across the country, giving them the chance, in effect, to profit from their own energy sources and help the UK meet its targets for clean energy. The new turbines should generate enough electricity to power more than 500 average-sized homes.

However, the cash will need to be locked away for three years and, if things were to go wrong, there's no protection under the Financial Services Compensation Scheme, although the loan is secured against the turbines.

"Cutting out middle-man fees through the peer-to-peer model allows us to offer better rates to the borrowers, as well as the lenders, so everyone gets a better deal," said Ms Groves. "Because the loan is secured against existing assets, some of the risk of lending is removed. The loan funds new turbines, so it also helps the UK meet its clean-energy targets by generating more wind power."

The turbines are owned by E5 Energy, a venture set up by Endurance, a manufacturer of small-scale wind turbines. Operated and maintained by Earthmill, they will generate revenue from fixed feed-in tariffs and the sale of electricity to the National Grid. Trillion Fund says it will crowdfund a maximum loan of £2.5m.

This is the second wind energy peer-to-peer loan it's organised. It raised £1.25m for E2 Energy, a joint venture between Endurance and Earthmill, last August. Brett Pingree of Endurance said: "Our aim with the first fundraising was to open up access to renewable energy for everyday savers and investors, which we achieved. Now we're offering even more everyday investors the chance to support the UK's clean-energy supply."

Around two-thirds of investors in August's wind turbine loan said their objective was "mostly financial but also social returns". With 7.5 per cent on offer this time – it falls to 7 per cent for those who invest after 28 February – the financial attractions are obvious, but investors should ensure they understand the risks involved.

"Lending money to businesses always carries risk, therefore returns should be compared to similar investments, not cash," advises Adrian Lowcock of AXA Wealth. "7.5 per cent interest rate is attractive, but does it sufficiently compensate for the risk being taken? The reason the rate is high is because there is risk."

He says you can get a better investment elsewhere, mentioning the AXA Global High Income fund which yields 6.7 per cent before tax. If you're only interested in investment returns, that's relevant. If you're keen for your cash to have a more positive effect that that's not so important.

A greener future

Guy Benson, 43

I'm a cereals farmer who lives and works in Wetwang, East Yorkshire, with my mother Pauline, my wife Mei Hong Chen, and our daughter Daisy.

We recently had an Endurance turbine installed on the farm and, rather than seeing it as a blight on the landscape, as some seem to think, we see it as a scenic acquisition.

We don't own it but we earn £4,000 a year, plus we get a share of the feed-in tariff revenue if the turbine generates above forecasts. As a family we know we made the right decision. It makes financial sense plus we believe it is important to do something to secure a greener future for our daughter and her children in years to come.

[The turbine is actually owned by Endurance, maintained by Earthmill, and will be refinanced by the Trillion community in a new share offer. The new loan will pay back Endurance's investment in the turbine as well as nine others and be used to fund 10 more sites.]

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