How you can invest in a green planet

Ethical investing is not just for tree-huggers but for anyone concerned about how their savings are used. Helen Monks reports

THE world of ethical investment is tricky and emotionally loaded because, what is morally acceptable to one person may be unacceptable to another.

For some, taking an ethical stance means making sure their money is not invested in alcohol or pornography, for others, it is ensuring that conservation projects benefit from their savings, for others still, it means simply avoiding causing harm to people.

Is it more important to get the most competitive and best performing financial products or to help save lab rats and rainforests? Or indeed, is "ethical investing" simply a catchy moniker for a cynical marketing ploy, rather than a genuine attempt to provide "clean" profits for conscientious investors?

Advisers in the field report a certain easing of views among some investors when faced with unappetising performance - morality, even for the apparently committed, it seems, can be sacrificed at the altar of profit.

You don't have to be an animal-rights protester to be interested in ethical investing - the phrase applies to any investment where the investor wishes to exert some influence over the behaviour of companies holding their money. And it does not take a liberal zealot to prefer a company pension scheme to refrain from investing contributions in harmful, exploitative industries.

Ethical financial products are based on a wide range of criteria, from strict religious rules, to happily investing in arms manufacturers - so long as the fund manager promises that the company only supplies the good guys.

In some areas, the choice is comprehensive, in others highly restricted.

Ethical Investment

It not clear to what extent investing ethically impacts on performance.

According to the Ethical Investment Research Service (EIRIS, www.eiris.

org), the five ethical stock market indices it operates have performed roughly in line with the FTSE All-Share Index.

There are currently more than 50 ethical investment funds - worth more than pounds 4 billion - open to individual investors. Some of the best-known examples are provided by Friends Provident (0800 000 080), which has its origins in the Quaker faith. All companies operating ethical investments will have an ethical policy you can check against your own criteria.

Ethical Pensions

There are around a dozen pension companies offering ethical pension-fund options, including Norwich Union (0800 056 5091), which offers an ethical-fund option on its low-cost stakeholder pension.

For occupational pension schemes, the National Association of Pension Funds (www.napf.co.uk) demands details of any ethical stance.

You are also entitled to ask your employer about its investment strategy.

Ethical Banking

The main player in this market is Co-operative Bank and its online division Smile.

It offers the same services as any other high-street bank while boasting a policy of not investing in oppressive regimes, the arms trade, fur or blood sports. It actively invests in fair-trade organisations.

Roughly speaking, Coop Bank's range of accounts and credit cards stack up well with other high-street names, although they are not always at the top of the best-buy lists. Coop's ethical policy and products can be seen at www.co-operativebank.co.uk.

Ethical Mortgages

Norwich & Peterborough Building Society (0845 300 6727) and The Ecology Building Society (0845 674 5566) are the main players in the ethical-mortgage market.

Norwich & Peterborough offers carbon-neutral mortgages, meaning that it plants eight trees a year for five years for every home bought or remortgaged with its Green mortgages. The trees are supposed to absorb the carbon-dioxide emissions produced by the property.

Mortgages on new buildings and existing properties are competitive, at a 1.25 per cent discount off standard variable rate (SVR), giving 4.4 per cent for four years. For existing properties the rate is discounted 1 per cent off SVR for four years at 4.69 per cent, before reverting to SVR.

The Ecology Building Society (www.ecology.co.uk) only lends on properties that give what it calls "an ecological payback", such as old houses in need of renovation, new homes built with recycled or sustainable materials, or homes which will be made as energy efficient as possible.

Ethical Insurance The market for general insurance, such as home insurance, with an ethical dimension is very limited. One company, Naturesave, centres on environmental projects only, while lobbying within the insurance industry more generally for environmentally sustainable development.

Naturesave (01803 864 390 www.naturesave.co.uk) puts 10 per cent of your insurance premium into a charitable trust to benefit environmental and conservationist organisations. It claims the customer does not shoulder this cost.

Ethical money: the jargon explained

Dark green: this describes an ethical investment that will only put money into sectors according to very restrictive ethical criteria. Alcohol or oil exploration would be automatically excluded, for example.

Light green: this describes investing with a conscience, without going to "dark green" extremes that risk excluding top performing companies from investment, and may include, say, alcohol or oil companies, according to their individual ethical records.

Engagement: no organisations are excluded from an investment fund, but companies are encouraged to improve their ethical policies.

Preference: your pension company or fund manager sets out the preferred social, environmental or other ethical guidelines it would like companies to conform to before investing.

Screening: the fund or pension will only invest in an acceptable list of companies. The funds that screen are likely to be "dark green", as opposed to those using engagement and preference will be "lighter green".

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