Environmentally Conscious Investing:Eight Questions To Ask Yourself
Recent government announcements and the need for the UK to play catch up with its European counterparts point to an environment sector with the potential for significant growth and that means opportunities for the investor.
But what does going green mean in financial terms and what are the options?
Julian Howes, of Go Green Investments – the environmental business arm of Cotswolds-based Graduate & Professional Financial Services – looks at how to invest and poses the key questions.
1) What shade of green are you?
Light green or green with a small “g”: These are funds that allow investments in well established companies that have clearly articulated environmental policies and environmental management systems, but whose main business is not directly related to the environment.
Dark green: or green with a capital “g”. You want your money to be invested in companies directly involved in the green sector and helping the UK reduce its carbon footprint through renewable energy, waste management and carbon-reduction technology.
Mid-green: as well as being involved in green technology, there are companies that have a mix of products and services, some of which are not directly connected to the green sector.
2) What’s your focus – environmental or broader ethical?
There are funds that invest solely in the green sector and there are funds that invest across the gamut of ethical measures and, as well as environmental performance, includes companies’ records on human rights, supply chain, governance, community engagement, employee welfare, animal testing, alcohol and stance on arms and defence.
3) How often do you want to invest?
Capital sum or regular contributions? In either case, plan carefully the amount you are realistically able to invest.
4) What’s your view – short or long-term?
If you are only investing for the short term, green cash funds are probably what you need. Investing in companies involved in the green sector, as with any other equity investment, should be considered a long term proposition.
5) What’s your risk?
Consider whether you are cautious or you enjoy higher risk in the hope of greater returns. Some investors prefer to balance their investments across a portfolio.
6) How knowledgeable are you?
It’s a wise move to seek guidance from a professional adviser to help shape your portfolio and ensure you have the risk and balance that suits your needs. Your financial adviser must be registered with the Financial Services Authority
7) How do you want to invest?
There are several investment vehicles designed to suit individual preferences as follows:
• ISAs: each year, individuals are permitted to invest up to a certain amount through their ISA allowance in either cash or shares or both. Gains are tax-free.
• Unit Trusts, OEICs and Investment Trusts: collective investments whereby money from savers is pooled and then invested to spread risk.
• Pensions: accorded the most favourable tax breaks because they are intended to provide for your retirement, you can hold a wide variety of investments within your pension fund
• Enterprise Investment Scheme and Venture Capital Trusts: these provide tax breaks for people investing in predominantly unquoted companies.
8) Build up a rapport with your financial adviser.
Like so many other sectors, the financial services arena has its fair share of terminology. An adviser will help you understand the terms and make informed decisions. A good adviser will understand your financial position and what you want to achieve.