Money & climate change

There are an awful lot of changes coming as to how the financial services sector can describe ESG investment solutions. We are all aware of the greenwashing that has gone on … if you are an enormous company (or even a small one) simply paying into some carbon offset scheme doesn’t really address the issue of your own actions. Equally, a so-called environmental company that makes electric cars may be run by an individual who, well, let’s say isn’t on my list of people to emulate in any way.

A sector that is high risk (you really can see all of your money disappear) is the startup, venture capital space. This is not for the faint-hearted. The sector is often looked to as the potential saviour of the planet and innovators for tomorrow. Well, we can hope that’s the case …

Here in the UK, we have Government incentives to step outside of the normal ‘investment world’ (which we call the retail investment sector) and consider a portion of your portfolio for venture capital. What has been concerning me over the last couple of years is that this and the previous Government seem to think allowing mainstream pensions to invest in this space is wise. It really isn’t. This is only for those who are willing to stake a relatively small part of their wealth in the hope of excellent returns and some serious do-gooding, with an understanding that it may also go horribly wrong.

As someone who generally advises you to have very low cost portfolios, tracking markets and not attempting to second guess the future; here I split off into a different character and acknowledge that the benefits of venture capital might be worth consideration for some of you.

EIS, SEIS and VCTs all have tax incentives … the Government adds 30%, 50% and 30% respectively to your investment. Though how it works is that you get this back as a tax refund. There are some conditions to maintaining this of course, but these are reasonable. Most investments are early stage and realistically need holding for 7-10 years as a minimum.

The pots of these investments are generally very small. Sometimes no more than half a dozen companies, rather than the multiple thousands that are in your regular portfolio (which reduces risk). The chance of failure is high, but the potential rewards can be significantly better than anything the retail markets might achieve.

Those who specialise, for example, in solutions to climate change include an EIS Fund by One Capital. I recently met with their team. I am not suggesting here that you invest in this, I want to use it as an example of the type of investment, nothing more – if you want relevant specific advice get in touch.

One of their holdings is with Bristol-based Kelpi, who make “plastic like” food containers from kelp and do the job, but without the plastic. You can have a look for yourself at their website here: https://www.kelpi.net/.

All investment managers of this type start with what they call ‘deal flow’ which is usually hundreds of people with ideas pitching them for money to develop and take their service or product to market. This is then whittled down by the investment managers to a manageable number before some deep dive due diligence is conducted. Eventually they may be left with a handful of companies that they believe have good prospects that suit their particular fund outlook.

Great ideas often fail to make great businesses; you need the right people. So this is an occasion where the managers and their hands-on approach and experience are all rather vital  … and expensive. EIS, VCT and SEIS all have much higher expenses and management fees than anything you are currently invested into.

Anyway, this sort of stuff is really only for those who have used up the normal allowance options (ISAs and Pensions), but if you would like to know more and perhaps have a specific focus for a small element of your money (say on climate change) then please get in touch. The tax year end is a factor in the process.

Just for interest, here is a short video by One Planet.

Video link here

Please note that I am NOT advising you to invest in this fund, you have understood that by now, this is simply an example of what is available. Investment should always be in line with your circumstances, values and goals as closely as possible.