Investment ISAs come in many shapes and sizes, from Stocks & Shares to Innovative Finance, and many different products in between. In the peer-to-peer lending market, investors can choose to back a Green ISA product offered by ethical P2P lending platform Abundance.
Abundance say they ‘offer investments that create something good for the environment and society.’ One of the hallmarks of investing in an Innovative Finance ISA, is being able to choose the type of project that your money backs. So naturally, along with bricks and mortar projects, many investors will be interested in eco-conscious ventures.
During the 2016/17 tax year, the first of the Innovative Finance ISA’s existence, Abundance’s Green ISA dominated the market. The Green ISA welcomed 1,436 new accounts, totalling an investment of £10.5m. In the same period, Abundance’s IFISA represented 72% of all Investment ISAs sold.
How does an Abundance Green ISA work?
A Green ISA works much the same way as any Innovative Finance ISA product, by utilising the peer-to-peer lending market. The difference between Abundance and other IFISA providers is that you can choose specific ethical projects to support.
Peer-to-peer lending with Abundance makes it easier for green initiatives to secure the funding they need alongside various government grants. You’ll begin by selecting a project you wish to support through the online marketplace.
You can choose to invest in green energy such as wind, solar or hydro projects. Alternatively, you can invest in housing focussed on affordability to help society’s most vulnerable people.
Your money is then lent to the green project along with other investors, at a usually fixed rate of interest. Depending on the product you select, you’ll receive interest payments at set intervals.
Your earnings will be protected from tax under the £20,000 tax-free allowance. This works the same way as any other ISA, as long as you stay below your allowance in the same tax year, the interest you have earned will be tax free.
Why are Green ISAs so popular?
Just like any product, many people are interested in how ethically it is made and how environmentally friendly it is. This is no different when it comes to the IFISA market. When given the choice between a regular IFISA product and an eco-friendly choice, plenty of people opt for the green alternative.
Essentially, helping to support a new solar power initiative can be more enticing than a standard bricks and mortar investment. It’s an ISA product that meets people’s investing requirements and lifestyle values.
Green ISAs are flexible
As well as matching many people’s values, Green ISAs are also attractive because of their flexibility. Investors can diversify their portfolio through a range of different green investments in various sectors.
You can choose to trade investments with other people on the Abundance platform at any stage of term. This makes it easy to adjust your portfolio to suit your changing needs.
Abundance allows you not only to invest in different types of projects, but to invest in different stages as well. You can choose to invest in the development, construction, business growth and operational stages of various initiatives.
As with any investment product, your capital is at risk with a Green ISA. If a project or company fails while you have money invested, there is a chance you could lose some or all of your investment.
Things such as higher than expected costs, lower that expected revenues, delays or missed deadlines can all affect the success of an invested project.
Green ISA case study
Without talking about specific projects, you can’t get a good picture of how an Abundance Green ISA really works in practice. Therefore, we’ve had a look at a case study of an ongoing project in the construction stage – to build the world’s most powerful floating tidal stream turbine.
Orbital Marine Power in Orkney
This project is offering 30-month secured debentures to help build an orbital tidal turbine in Orkney. The final design of the turbine will be installed and maintained using small, local boats. It is expected to generate more than 3 GWh of power in its first year of operation.
The project has already received £9 million in grants and funding. Investors now have the chance to contribute over a fixed term of 30 months with 12% interest offered. Interest is paid at maturity. The marine power project is an opportunity for investors to support the UK’s growing expertise in tidal energy.