Are we becoming more ethically aware when making investments? According to recent research conducted for Triodos Bank, more than one in 10 Brits say that they plan to remove any investments they hold involving fossil fuels over the next 12 months. And among 18 to 34-year olds, the proportion rises to 40 per cent.
But what can crowdfunding bring to the table? To find out, City A.M. speaks to Bruce Davis, co-founder of P2P lender Zopa and, more recently, co-founder of Abundance, a debt-based crowdfunding platform founded in 2011. It provides lower-risk investments in ethical and sustainable infrastructure projects. To date, its loans have funded 10 projects for a total of just over £9m from 1,800 investors.
The first crowdfunding campaigns saw fans raising money for music projects. Does crowdfunding lend itself more towards creative and ethical business models?
People have always wanted their money to be used for ethical purposes – things that are good for the planet and society, and that don’t cause harm – but they have been starved of choice by an old-school financial services industry which still puts short-term profit ahead of long-term sustainable financial and social benefits.
Crowdfunding has grown out of the gap between the values of the City and the values of wider society; Abundance is an example of how it is doing so, both for investors and small ethical businesses in need of funding, such as smaller renewable energy projects.
The Great British Money Survey 2014 confirmed that 62 per cent of people want to be in control of their money and choose exactly where it goes to get a return. And 58 per cent would be unhappy if they found out that their money was being used for unethical activities.
Crowdfunding gives you precise control and transparency over where your money is going and what it’s being used for. Which projects and businesses achieve their funding becomes a democratic process that better reflects people’s values. This is good for society but new for financial services.
Given the poor track record of the established fund management industry in providing readily accessible and genuinely ethical investment opportunities, crowdfunding could bring about very significant growth in both the funding of socially useful infrastructure and the engagement of individual investors whose preferences have previously been ignored.
What’s the most exciting development you’ve seen in the industry to date?
Democracy is easy to say, harder to do. But opening up ethical investment to ordinary people is really exciting. The Abundance approach offers good returns, paid twice a year and at relatively low risk – certainly when compared to equity crowdfunding. With just a £5 minimum investment, it is accessible to nearly anyone – this is a mainstream alternative, and not just for the wealthy. Investors are enjoying returns far in excess of those paid by bank savings accounts but without exposing themselves to excessive risk or having to ignore their values and ethics.
At the business end, crowdfunding is providing an invaluable new source of investment for the smaller scale renewable energy sector. These firms are too big for angel investors but too small for major institutional investment. This is unlocking the sector’s potential to contribute significantly to the UK’s green energy targets, while providing a model that works positively with local communities who can participate financially.
Our investors don’t have money to give away, but they do want to do some good in addition to achieving their financial goals. A good example is the Engynious Schools project funded last year, involving solar panel installations on a number of schools across the UK. Investors are enjoying an equivalent rate of return of 6.65 per cent, while the schools enjoy much cheaper electricity and the children can study renewable energy production in real time.
Are there any risks that are peculiar to ethical businesses?
Ethical investments are just like traditional ones: if you are looking to make a return, you need to look at the fundamentals of the business. And in the case of lending and bonds, how you are going to get your money back. Some loans or bonds pay back your original investment in equal instalments as ours do, others with a single payment at maturity.
There are no additional risks for businesses acting ethically. In fact, the Bank of England has recently warned of the increased risk that environmentally-damaging stocks face. Governor Mark Carney said that fossil fuel assets could be significantly devalued in the event that a global deal to tackle climate change is agreed.
City A.M. has partnered with Crowdnetic for the launch of its suite of UK crowd finance data. It features information on private UK-based companies publicly raising capital online through securities-based crowdfunding portals.
Through CityAMCrowdwatch.com, investors can track a comprehensive listing of UK private offerings from leading platforms including Property Moose, Angels Den, Crowd for Angels, Fireflock, Funding Tree, Property Seed, Seedrs, Crowdcube and The House Crowd, with more slated to join.
In addition to real-time activity data, investors are also able to search for companies based on selected criteria and can access data analytics tools.
Crowdnetic’s European managing director Adam Braggs said, “The crowd finance industry has enjoyed significant growth globally. Our solutions will be a useful addition to the market and our partnership with City A.M. is a key milestone”.