I got a lovely sense of déjà vu last week when I met the founders of Abundance Generation, a recently established FSA authorised investment firm which is helping community-owned
renewable energy projects raise finance from individual investors. More about that in a moment.
Escaping from the City, my first project in the co-operative sector, way back in 1987, was organising a public share issue for a new loan fund for new-start co-operative ventures. The mid 1980s was really the starting point for the ethical investment sector. Friends Provident, originally a Quaker institution, had just launched its Stewardship unit trust, which avoided investments in arms, tobacco and other sectors deemed unacceptable to ethical investors. The two ethical ratings agencies – EIRIS and PIRC– were just getting started and the world was waking up to the principles of Socially Responsible Investment.Twenty five years later, it’s now a global phenomenon. Ethical investing is enshrined in the United Nations Principles on Responsible Investment which are followed by funds representing $25 trillion of assets. There’s even a FTSE index tracking the sector worldwide, called FTSE4GOOD.
But while investors can now easily buy mutual funds that have been screened for stocks with positive and negative environmental and social impacts, these funds are mainly invested in large public companies. The financing challenge for small projects remains as acute as ever. Banks are not lending (with the exception – naturally! - of The Co-operative Bank, which is already half way to its commitment to lend £1 billion in renewable projects by 2014), venture capitalists are not taking risks and worthy projects are stuck on the starting blocks for want of capital. No wonder our economy isn’t growing.
With intermediaries like banks and equity funds sitting on their hands, earning their 2% management fees for hoarding cash, it’s no wonder that the more adventurous ethical investors are taking to direct action. Through their efforts, there are now ways to invest directly in renewable energy projects, cutting out the inactive middle man.
Energy4all was in the vanguard of this direct investment movement. They help community owned renewable energy projects get started, including providing a blueprint for prospectuses and share issues. They helped Westmill, one of the first community-owned wind farms, from which we buy some of our renewable energy.
Abundance Generation follows this approach. Inspired by the new peer-to-peer lending movement, in which people bypass the banks to lend directly to businesses, Abundance is assembling a portfolio of projects and inviting people to buy long term debentures directly in those projects. One of the founders of Abundance was a co-founder of the brilliant Zopa, the original peer-to-peer lender.
Of course, direct investing in small projects is not for the faint hearted. You must be happy with the risk of being exposed to one project rather than a portfolio, and you must take a long term view and accept you might not be able to cash in your debenture early, if at all. A good summary of the “green” investment options currently available is provided in a recent article in the Financial Times.
What strikes me about these examples is how much the co-operative sector and ethical investing are intertwined. Both are offering different and inspiring ways of doing business in an otherwise flat economy. The credit crunch and the recession are spurring on financial and co-operative entrepreneurs, who are opening up a whole new world of investing opportunities for those of us fed up with the established financial system.
You can link to the websites of the various organisations mentioned in this blog entry by clicking on the hyperlinks. Of course, nothing in this blog entry should be taken as a recommendation to invest.