Comment: Can you get a fossil free ISA?

As the deadline approaches for British savers to contribute money to tax-free Individual Savings Accounts (ISAs) (April 5) ShareAction, the movement for Responsible Investment, asks can you save without putting your money into fossil fuels?

The short answer is: maybe, but you’d definitely need to pay a higher fee and even then we’re not sure you could keep your money out of fossil fuel assets.

This may come as a surprise, after all there’s a growing global drive for divestment – the selling off of fossil fuel investments – ahead of crucial climate change talks in Paris in December.

Divestment

For institutions there are options.

The Guardian’s Trust has just said it will sell off about £20 million of its fund that is invested in fossil fuels amid a campaign by the paper to try and get the Wellcome Trust and Gates Foundation to do the same.

And several prominent universities including Syracuse University in New York, Stanford and Glasgow, some churches and many other institutions have also said they will sell their stakes in coal or oil companies.

Indeed some see fossil fuels as risky investments because action on global warming will cut demand for fossil fuels leaving assets in oil, gas and coal worth less.

But for an individual “divesting” your assets from oil, gas and coal may prove trickier.

In fact we called 150 fund managers, asset managers, savings platforms and other product providers in the UK to ask whether a low-fee, fossil-free, index-tracked savings product exists.

So far, we’re yet to find one British savings, pension, or investment provider who offer savers a low-fee (roughly 0.25% annual management charge or lower), index-tracked savings product that simply rules out fossil fuel companies.

If you’re pro-divestment, and looking to meet the ISA deadline, it’s tricky to find an ISA provider that will keep your savings out of these high carbon companies.

That is, unless you go for the “ethical” or “Responsible Investment” savings options that many fund providers offer – but these often charge a higher annual management fee – around 1% or higher. To top it off, hardly any of them specifically rule out investing in fossil fuel companies.

If you don’t back divestment, you could buy a share and attend the company’s annual general meeting, or file a shareholder resolution, to help convince a company like BP or Shell to make immediate and significant commitments on climate change.

Tailor made versus tracker funds

But if you’re a saver whose priority is keeping the cost of investing low, the reality is that you may not want to pay higher annual management charges to an active fund manager (Important legal note: We’re not giving you financial advice, here, because there are rules about that kind of thing).

In that case, the likely option might be a lower-cost tracker product. These offer lower annual management charges than you might pay for a supposed financial whiz-kid to do all the stock picking.

The problem is that if you’re using a lower-cost tracker product to navigate the stock market’s performance, then, as things stand, you’re going to be invested in fossil fuels as these companies make up a significant chunk of the stock market and the global economy.

In the US, Fossil Free Indexes and BlackRock have produced index-tracked products for large institutional investors like pension funds, which track the indexes of largest stocks, minus the world’s most carbon-intensive companies.

But these products are only available to large and institutional investors. Not yet to regular savers like you.

Which is perhaps a shame because, last year, these outperformed tracker indexes which included fossil fuels.

Providers say the products aren’t available because there isn’t the demand. But it’s hard to prove demand for something that doesn’t exist – so we’ve done a petition to show demand.

There is also a campaign for so-called “Green ISAs” giving tax-free status to investments in UK clean energy, though these may also come with higher charges.

Maybe, by next year, it won’t be so hard to find a way to invest in a low-fee fossil-free fund.

Matt Davis and Colette G. St-Onge are the Director of Communications and Digital Campaigns Officer at ShareAction