Tony Hales of Stadia Trustees discusses how green investments can add an element of diversification to an individual’s SIPP.
There has been a significant increase in the number and type of ethical investments in recent years, especially in investment funds managed on behalf of high net worth individuals.
The Financial Times defines sustainable business as managing the triple bottom line – financial, social and environmental risks, obligations and opportunities, or ‘profits, people and planet’.
While ‘green’ is important, there are often social and economic aspects too, with projects helping to provide employment, education and perhaps healthcare in the communities surrounding the underlying investment projects.
For example there is one investment company, working with its plantation operators in Malaysia, which ensures all the families on its plantations receive a house, a small holding to grow their own fruit and vegetables, and gas and electricity from renewable sources, thereby enabling the families to send their children to school.
There are lots of ‘green’ investments available, some UK based and others based further afield. As with any investment there will be an element of risk. Some ‘green’ investments may be classified as unregulated collective investment schemes (UCIS), however there are others which have sought and obtained legal opinion that the investment structure is not considered to be UCIS.
In a large number of cases, the investments will not be regulated or authorised by the FSA, and the investor will not therefore receive the protection of the Financial Services Compensation Scheme. This does not, however, mean that such investments should automatically be labelled unsuitable or inappropriate for self-invested pensions.
Green investments can include carbon credits, ‘green’ or bio-oil, sustainable agroenergy, hardwood plantations and renewable energy.
There has been some adverse publicity surrounding ‘green oil’ including discussions on whether or not it is a good investment opportunity. As with any investment, but especially with SIPPs, it is important that the client and the SIPP provider undertake sufficient due diligence, and that all parties are fully aware of the risks and are prepared to accept them before making any such investment.
Depending on the investment structure, there may be currency, geo-political, environmental and liquidity risks. While in many cases alternative investments may not be appropriate for 100% of a person’s pension fund portfolio, such investments could be considered in respect of diversification.
So why go green?
Green investments are widely seen in the ‘alternative investment’ sector, with investors seeking a more sustainable (pun intended) return than that which they have seen with more traditional investments. Of course the ‘feel good factor’ is also something that should not be underestimated.
In a world where we are constantly being told to think of our environment before we turn a light on, or before we use a plastic carrier bag at the shops, green investments provide the client with that satisfaction of knowing their investment is intended to work with the planet, rather than against it and to make the world a better place.
In December 2011, 6% of applications received by Stadia were looking to invest in ‘green’ investments. In January 2012, this increased to 8% and in February, 10% of applications were looking to invest in ‘green’ investments across the spectrum from bio-oil to bamboo and others in between.
In a world with a growing population and increased pressure on traditional energy sources and food production, investments in sustainable agriculture, forestry and renewable energy will continue to increase. After all, we all prefer to have food to eat, have shelter and be warm.
The feel good factor of SIPP diversification
Author: Tony Hales
Professional Adviser | 22 Mar 2012 | 08:00