Three years ago, I chronicled my attempts to invest some spare cash ‘ethically’ in weekly blog posts here at www.ethicalcapital.com. I thought it would be a relatively straightforward exercise, but it took me the best part of a year to invest my pot before life took over and the project got side-lined.
Having a bit of spare time during the Covic-19 crisis, I thought I’d look back on the experience and see how the investments have fared.
Between January and October 2017, I made the following six £500 investments:
- Start-up equity investment in MacRebur (‘Using waste plastics to replace bitumen in asphalt, resulting in more durable, longer-lasting roads’) via Seedrs
- Start-up equity investment in Mishergas Energy Recovery (‘Developing a sustainable facility to reclaim the resources from waste tyres using green technology’) via Seedrs
- A loan/bond to Solar for Schools (helping schools acquire solar panels) via Ethex
- Shares in Ecological Land Co-operative (‘develops affordable, low impact, small farms for new entrant farmers to ecological agriculture’) via Ethex
- Five small (£100) investments 5 mainstream ‘ethical’ funds in via the Hargreaves Lansdown investment platform
- A Shared Interest Share Account (‘providing loans and credit facilities to primarily fair trade businesses’
You can read my rationale for each investment in the pervious blog posts and see that as part of the process, I also went down a number of cul-de-sacs and found out what the term ‘ethical investment’ meant to me. Looking back, here’s some things I learnt.
1. Financial Returns
My investments have done surprisingly well financially. Perhaps more luck than judgement as looking back, I didn’t really have an overall strategy and I’m very much an amateur investor. Here’s the estimated values as at May 2020 (£500 was invested in each during 2017):
- MacRebur shares value on SEEDRS secondary market = £869
- Mishergas shares value on SEEDRS secondary market = £800
- Solar for Schools via Ethex yielding 5% interest pa = £575
- Ecological Land Co-operative value via Ethex = £538
- Hargreaves Lansdown funds = £535
- Shared Interest = £502
So, an overall ‘portfolio’ value of £3819, giving a 27% return (£819) over 3 years (approx. 9% pa) on the original £3000, with all the investments providing a positive return. I have to admit to double-checking this several times, as I had anticipated a loss – especially given the recent financial turmoil linked to Covid-19 (although there may be a time lag before the full impact hits). There’s also a pinch of salt needed as the secondary markets to sell the shares are not well developed and the share prices are only guidelines.
The high-risk start-up investments in MacRebur and Mishergas have outperformed all the other investments, but are also the most volatile and would need to find someone to sell the shares to on SEEDRS in order to realise the gain. Ditto the Ecological land Co-operative, which would have more uncertain sales potential via Ethex. The ‘steady Eddie’ of the pack is Solar for Schools, which has been doing what it said on the tin and paying 5% interest each October as promised.
So, these ‘alternative’ ethical investments have all done much better than the mini-basket of funds I somewhat randomly chose via Hargreaves Lansdowne. Within the basket, some performed very well (Stewart Investors Worldwide Sustainability Fund) and some very badly (Premier Ethical), but overall the investment grew by £35 or 7% over three years, just about keeping up with inflation (c. 2% pa).
2. Impact
Looking back over the three years, another surprise was how my expectations around impact played out. I’d assumed a pay-off between financial returns and impact. This was highlighted by my final investment in Shared Interest, which was triggered by an article on the perils of impact investing by Oxfam. I’d reconciled myself to forgoing financial return as long as I knew the investment was doing good, but feel that I know least about the impact my Shared Interest investment has had.
I have no doubt that Shared Interest put the money to good use supporting fair trade famers, it’s just I feel that the other investments have done a better job in engaging with me and informing me about impact. Driven by demanding investors, I regularly have updates on how MacRebur and Mishergas are doing, with numerous prompts to visit the discussion board to pick through the latest developments.
Similarly, the Ecological Land Co-operative kept me very well unformed with updates and annual reports. To be honest, I’d heard so little from Shared Interest that I had to double check that I’d actually made the investment in the first place. There’s plenty of information on their website and I admit to laziness in not taking the initiative to look myself, but it still doesn’t have the direct connection that some of the other investments have given.
Therefore my ranking for impact of the investments, based on the quality of information and assurance that I feel I have gained in terms of the positive (social and environmental) impact is different from the financial impact as well as what I might have expected:
- Ecological Land Co-operative
- Solar for Schools
- = MacRebur & Mishergas
- Shared Interest
- Hargreaves Lansdown Funds
Bottom of the pile are the Hargreaves Lansdown Funds, as I still find the lack of transparency around ‘underlying investments’ and mis-use of the word ‘ethical’ in mainstream investing frustrating.
3. Casualties
As well as the Peoples Trust, whose failure to reach its fundraising target was the last nail for the ethicalcapital.com project at the time, there were a number of other potential investments that I came across in 2017 and for various reasons didn’t pursue. So, where are they now?
I’ve struggled to find any trace of the Social Stock Exchange, which provided me with much food for thought in the early days of the blog. Similarly, the ‘ethical’ part of Thin Cats seems to have vanished, along one of its investment prospects that I was tempted by, the Community Benefit Group.
It just goes to show the fragile nature of some of the ethical investment opportunities and that I shouldn’t get too carried away with the apparent success of the investments I did end up making, as I could easily have ended up with a big loss.
4. What ‘Ethical’ Investment Means
Looking back, I was quite dismissive of the variety of terms used amongst the ‘ethical’ investing community. ‘Socially responsible’, ‘mission-led’, ‘impact investing’, all have their nuances but can be quite confusing to the outsider. Ultimately, it’s up to the individual to decide what it means to them. Looking back at the investments I ended up with, my personal preference is for direct, ‘alternative’ investments which ended up being mainly environmental in terms of impact as this is where most investment opportunities were.
5. Back to the Future
So, comparing where we are now to where we were in 2017 in light of my experience, how am I feeling about investing ethically in the future? Although I’m less engaged now in the world of ethical investing than I was at the time, there still doesn’t seem to have been that elusive step change in the scale of the sector to offer the accessibility, transparency and liquidity I was looking for.
However, there are some interesting moves towards Crowdfunding by Local Councils and Fintech developments continue apace which may cause a breakthrough. There’s also the recent Government announcement that another wave of dormant bank account funds will be used to stimulate the sector.
The Covid-19 crisis has given us all time to reflect and there is a massive rebuilding job to be done for the economy. So, I’m going to continue to look out for interesting, direct investments that have a positive impact as part of this, emboldened by the benefit of hindsight.
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