STILL pricked by your conscience after the Christmas orgy of consumption? How guilty are you really feeling? Just enough to resolve to recycle or so remorseful that you are prepared to leave your car at home and brave public transport to get to work? Living ethically has a financial dimension, too, but are you guilt-ridden enough to sell those lucrative oil stocks (BP shares rose about 25 per cent last year) or just enough to commit to a greener Isa? If you are fully committed to giving yourself a green makeover for 2006, you will need to assess every aspect of your finances, including investments, pension, savings, bank account and your mortgage.
Investment
Although “sin stocks”, in particular the oil companies, have had a very good run of late, ethical fund managers have defied the sceptics by consistently outperforming the FTSE 100 index. A survey by Life and Pensions Moneyfacts, the magazine, showed that while ethical funds have underperformed non-ethical funds, they have beaten index-tracking funds over three, five and ten years.
Fund managers claim that the performance of ethical funds is likely to improve as more companies adopt social responsibility policies and therefore become eligible for inclusion in green funds.
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The range of ethical funds available to UK investors has grown dramatically over the past decade. The Ethical Investment Research Service (Eiris) says that there are now 70 ethical funds worth £5.5 billion, compared with £792 million in 1994.
Which fund to pick will depend on how green you want to go and whether you want your fund to screen positively or negatively. Light-green funds, for example, will invest in oil, pharmaceutical companies and banks, but not tobacco, arms companies or those that test on animals.
Dark-green funds apply stricter criteria, tending to screen companies negatively. In other words, companies that fail to meet the fund’s ethical standards are excluded. Going dark green does not mean going niche, however. The UK’s oldest and arguably most respected range of ethical funds, F&C’s Stewardship funds, fall into the dark-green category. Over the past three years, F&C Stewardship Growth has grown by 78 per cent, while Stewardship Income has performed almost as well, returning 73.5 per cent.
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Pensions
If you have a personal pension, a self-invested personal pension or a stakeholder, then how ethical your pension fund is depends largely on your choices. However, if you are a member of an occupational scheme, things are not quite as simple: the choice of where your money is invested is out of your hands. However, you can find out where your pension money is invested and, if you are unhappy with your scheme’s investment strategies, you can try to influence the trustees ’ decisions.
Ask for a copy of your scheme’s statement of investment principles. Trustees are obliged to state whether they take account of social or environmental concerns within their investment strategies. You can put pressure on the trustees to change their stance or, if you are really prepared to go the extra mile, you could stand for election as a trustee yourself to try to change the investment principles.
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Savings and bank accounts
Banking and savings choices are fairly limited. The obvious choice is the Co-operative Bank, but it pays no interest at all on balances in credit. You could opt for an account with smile, the Co-operative Bank’s internet arm, which pays
3.04 per cent on balances in credit. The account has a £500 free overdraft and you pay just
9.9 per cent if you sink deeper into the red. Even better, smile also scores highly on customer satisfaction.
The other green financial institutions in the UK — the Ecology Building Society and Triodos Bank — do not offer current accounts, but they do offer savings accounts. The range from Triodos includes “partnership” accounts with organisations such as Amnesty International and Fairtrade. It also offers social investor accounts that link your savings to initiatives that benefit people and the environment, such as organic farms.
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Unfortunately, the interest rates are not exciting, The social investor account pays up to 3.78 per cent, depending on how much you have on deposit and the length of the notice period. The Ecology’s top rate is 3.55 per cent. Better rates are available on Isas. The Ecology’s Earthwise Isa pays 4.5 per cent if you make no more than one withdrawal a year. Smile pays 4.65 per cent if you are a smile current account holder.
Mortgages
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Many of us may be prepared to save ethically, but rates take precedence when borrowing. “Ethical mortgages represent only a fraction of the industry,” says Melanie Bien, associate director at Savills Private Finance, the mortgage broker.
Your choice is limited to the Co-operative Bank, smile, the Ecology and Norwich & Peterborough Building Society (N&P), but rates are rarely best buys. A four-year fixed rate from N&P, for example, costs 4.98 per cent, slightly higher than the best five-year fix on the market.
Lenders take different approaches to green lending. N&P will plant forty trees over five years for every home loan taken out, while the Ecology grants mortgages for energy efficient new-builds or to renovate derelict properties.
If you are not prepared to pay over the odds for a green home loan, there are alternatives. “Some lenders offer an energy report on the property that you are proposing to buy,” Ms Bien says. “This examines the energy efficiency of the property and suggests ways in which it can be improved.”