How to use your savings to campaign for a better world
Choose ethical financial services providers to make a difference, says Jenne Mannion
Saturday 19 November 2005
People who live their lives with socially responsible principles in mind would be appalled if their money was spent in ways that contradicted such values. But unless you take action to prevent this occurring, that's what can happen with money invested in banks, building societies and pension funds.
Most people have a savings account. The providers of these accounts use your money for their own ends. Your deposits are loaned to other individuals and businesses - possibly to fund activities that you would not choose to support.
Ethical banks, by contrast, state all the activities to which they are happy to lend money, and they operate within strict criteria.
Philip Chapman, a financial planning director at John Scott & Partners, says that although an ethical bank's account may not pay the very highest rate of interest in the market, you will still have a full range of products, including current accounts, savings accounts and even cash Isas.
"Some banks have a positive investment policy, focusing on enterprises and activities that create social or ecological benefit," Chapman says. "Others use a negative investment policy, avoiding sectors or areas of activity with a negative impact, such as tobacco, arms or animal testing."
There are four main ethical banks. The largest is Co-operative Bank and its internet subsidiary Smile. It is the only bank to apply ethical criteria across all of its activities.
Even better, says John Ditchfield, an adviser at Barchester Green, Smile offers the most competitive range of products of all the major ethical banks. Smile's current account pays an interest rate of 3.3 per cent a year, while the bank's cash Isa offers 4.65 per cent if you also hold a Smile current account, or 3.95 per cent if you don't.
The other three ethical operators are Triodos Bank, which finances only those enterprises that can clearly demonstrate a positive impact on the environment and the community; Shared Interest, a co-operative lending society; and the Ecology Building Society, which uses the money deposited by savers to grant mortgages on properties and projects that help the environment.
A good way to support your favourite campaigns is through affinity cards. This is where a card issuer donates a portion of the annual fees or interest charges to the sponsoring organisation.
One example is the Co-operative Bank Oxfam Visa credit card. For every new card taken out, Co-operative will donate £15 to Oxfam. A further donation of £2.50 is made if the card is used within the first six months, plus a further 25p for every £100 spent on the card or transferred to the card. Co-operative runs similar cards for Greenpeace, Amnesty International and the Royal Society for the Protection of Birds (RSPB), which is particularly popular.
No one likes paying interest charges, but profits on mortgages or loans from ethical banks may at least be put to good use.
Co-operative Bank offers a mortgage that tracks the Bank of England base rate for the entire lifetime of the loan, and has no early repayment charges. The rate is quite competitive, at base rate (currently 4.5 per cent) plus 0.45 per cent, total 5.1 per cent AER.
The mortgage also has a number of positive environmental features. First-time buyers receive a free home energy rating report with their valuation.
If you have any form of pension, saving either directly or through your employer, you may be able to ensure that the money is invested ethically. A number of company pensions offer ethical fund options, and you will certainly have an ethical option in a personal arrangement, such as a stakeholder plan or Sipp.
There are many variations of such funds, according to the screening techniques employed. While most will generally avoid unsavoury areas such as weapons and tobacco, for example, others will look for more positive factors, such as those aiming to make a positive impact on the environment.
Jonathan Clark, a financial consultant at Barchester Green, says the main pension providers his company uses for ethical investing are Friends Provident, Norwich Union, Scottish Equitable and Standard Life.
Clark adds: "There is a common perception that investing your pension in ethical funds is higher risk because your money is being concentrated into certain areas of the stock market.
"Our argument is that these funds screen out the stocks that are higher risk because of their activities. If, say, there was a class action against tobacco companies in the UK, pension funds containing tobacco stocks would suffer."
The ethical fund management business is massive, with more than £3bn invested in unit trusts that invest according to environmental or socially responsible principles.
Each fund's stance varies - in the same way as pension funds - so in addition to looking for good investment performance, savers need a fund where the principles reflect their own.
The Ethical Investment Research Service (020-7840 5700; www.eiris.co.uk) is the best source of information on the whole ethical fund market.
A tax break for ethical savers
* Community Investment Tax Relief (CITR) enables you to put your cash into a savings account for five years. The money is put to use helping good causes in regions and sectors throughout the UK.
* Rather than interest, you get an income tax credit of 5 per cent a year over the five-year duration. On an investment of £5,000, for example, you would earn a £250 income tax bill reduction each year.
* For a higher-rate taxpayer, this is the same as earning 8.33 per cent interest before tax from a savings account, or 6.41 per cent for a basic-rate taxpayer.
* The two main banks that offer CITRs are Triodos and the Charity Bank. The Community Development Finance Association lists other CITR accounts linked to individual projects on its website ( www.cdfa.org.uk).
'I want my savings invested responsibly'
Jill Nichols, of Dukinfield, Greater Manchester, feels comfortable knowing that the money in her bank account is not being put to use in an unsavoury manner. Jill, 57, opened her account with Co-operative Bank 30 years ago, initially out of frustration with her previous bank.
"At the time, I was married and my bank would not let me have my own cash card or credit card," she says. "I was so incensed by this that I decided to go elsewhere, and I thought that a co-operatively run business would be better."
Since switching to Co-operative, Jill has become more aware of its socially responsible policies, and says she would now settle for nothing less.
A part-time librarian, with one son aged 32 and a young granddaughter, Jill says she now wants other people to be more aware of how their savings are used by the larger banks. As well as her current account, she also holds savings accounts with her bank.
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