Are you keen to get into impact investing?
That’s where you invest in companies that have a provably positive effect on the climate or on humanity generally. It’s something that people who are concerned about climate change, child poverty, health issues and more aim to do.
In fact, there’s been a surge in people looking to invest their money sustainably in recent years.
While cutting down on single-use plastics and ditching straws in your cocktails is an easy way to fight climate change, where you invest your money is likely to be even more crucial.
But it’s not just investors combatting the climate crisis who are beginning to think sustainably and get into impact investing. Investors today are often far more cautious about putting their money into stocks like tobacco or oil which they see as harmful.
The investment industry has been forced to respond by placing a greater focus than ever on funds that tick these boxes, and a number of new platforms have been established seeking to make it easier for investors to make the right decisions.
Here we’re focussing on one of these: the Big Exchange, a platform that launched roughly a year ago.
- What is the Big Exchange?
- What is impact investing?
- How does it work and how much does it cost?
- An example of how the system works
- How do I set up an account with the Big Exchange?
- How much does it cost and is my money protected?
- What are the other options?
- Is the Big Exchange right for me?
What is the big exchange?
The Big Exchange was launched in partnership with the Big Issue, which is its biggest shareholder, and aims to provide jargon-free explanations of the myriad types of impact funds available.
Its aim is to make finance more accessible and help those who may never have invested before access the market.
Chief executive Jill Jackson said: “Something like 67% of people want to invest with impact but don’t know what that means, or where to begin. We want everyone to be able to get involved with investing.”
It has two services:
- an investment platform, currently accessible online only,
- and a free smartphone app which is focused on money management and budgeting. This uses open banking to allow people to connect their bank accounts to make tracking their finances easier.
In the future it plans to offer sustainable products – like green energy deals – through the app, but this function is not currently available.
The investment platform currently features around fifty funds, selected with a specific focus on “impact”, according to Ms Jackson.
What is impact investing?
Impact investing is about putting money into companies that you believe have a positive impact on the world, our climate or on social structures.
Determining how sustainable your investments are, or whether they are having a positive impact on the world, can be tricky.
Even the accepted definition of impact investing used by the asset management industry can be a little different to what ordinary investors might imagine.
Investment firms use a process called “ESG”, standing for environment, social and governance, to determine how “ethical” the stocks they buy are. This balances concerns about a company’s impact on the environment, its social impact and how strong its leadership is.
There are some funds which are specifically focused on ESG stocks, but even those which aren’t are increasingly taking this definition into account.
Even within this category, though, there are vastly different approaches. Some funds completely freeze out certain types of stocks. For example, a sustainable fund might explicitly not have any holdings in fossil fuel companies.
However, other funds will see fossil fuel producing companies as part of the solution, buy the stocks and try to engage with them to improve.
All of this makes it difficult for ordinary investors to work out whether their money is being put to good use.
That’s where the Big Exchange comes in.
How does it work and how much does it cost?
The Big Exchange attempts to give investors far more detailed information on the choices made by the 50 funds on its platform and the companies within them. This information can be viewed without the need to create an account.
Firstly, the funds have been independently assessed and rated using an Olympic medal system: gold, silver or bronze. If a fund is not deemed worthy of a medal rating it won’t be put on the platform.
Users can filter funds by their rating, only viewing gold-rated options for example, or can filter them by their purpose – split between “people” and “planet”.
Each fund has a page with important information about it, including its cost and recent performance, and links to relevant documents.
This is where most platforms would stop, however the Big Exchange also provides a detailed assessment of the goals of the fund and, crucially, where it is “making change” in terms of the UN’s sustainable development goals (SDG). It also raises potential issues that investors may have with the companies within the fund, and gives it an overall rating out of three for “positive influence” and “transparency”.
It may be that you personally have no problem with the issues raised, however, it does help investors to form a complete picture of what will happen to their money.
The other key difference to the majority of platforms, and indeed asset managers’ own paperwork, is that the Big Exchange provides a complete list of companies that each fund owns. Ordinarily, investors would only be able to see the top 10 biggest holdings.
This is helpful, however, the platform does not make it clear which firms are its biggest, which is a slight annoyance.
The platform has also designed three “bundles” of funds based on risk to make it simple for a novice investor to get started. Investors can choose the bundle for them based on their appetite for risk: cautious, balanced or adventurous.
An example of how the system works
To give an example, the Liontrust Sustainable Future Managed fund is given a silver medal. The Big Exchange offers a lengthy overview of its investments, and potential arguments over its impact.
It lists the three UN SDGs where the fund is deemed to be making a difference: good health and wellbeing, industry, innovation and infrastructure and responsible consumption and production.
It also raises potential issues investors may have with its holdings. For example, the fund has exposure to firms which may carry out animal testing and others which make pesticides. It also has one company which derives some revenue from military sources.
Those running the funds have been given the chance to respond. Interestingly, in this case, Liontrust had provided detailed responses to most of the points, for example explaining that animal testing is deemed to be acceptable as part of safety testing, but only where no alternatives are available.
The Big Exchange had not received responses from the managers of most of the funds we checked.
How do I set up an account with the Big Exchange?
An account can easily be set up online, much like other investment platforms. A range of personal information is required to set up an Isa or other type of account.
- You will need to provide your National Insurance number, bank account details and, if you wish to make a one off initial payment, a bank bard. The website says it will take 10 to 15 minutes to sign up.
- There are two minimum investments: £100 if you wish to make a one-off payment or £25 if you set up monthly direct debit payments.
- The latter option has the benefit of helping you save each month and also means you will not be unduly penalised if you first invest during a spike in the market. This is a phenomenon known as “pound cost averaging”.
three different types of account
There are currently three different types of account which can be opened with the Big Exchange, and each will suit a different type of investor.
The one that is likely to suit most investors is an individual savings account (ISA). ISAs allow savers to put away up to £20,000 each year with any investment growth free from tax. This makes them a very tax-efficient option, particularly now that the Government has announced an increased tax on dividends.
It is worth bearing in mind that the £20,000 limit applies across all ISAs you may have. So if you save £15,000 into a stocks and shares ISA, you could only put up to £5,000 in any other ISAs you have.
The ISA offered by the Big Exchange is a stocks and shares ISA. You can only open one type of stocks and shares ISA each year, and you can only pay into one account annually. So if you already own an account with another broker, such as Hargreaves Lansdown or AJ Bell, you will need to ensure you do not make contributions to both.
Those under the age of 18 will only be able to get a Junior ISA. These can be opened by someone on behalf of the under-18 year old. They operate in the same way as a standard ISA, except that the annual limit is reduced to £9,000.
A great place to start up a JISA is Beanstalk. The beanstalk app allows you, or anyone you invite, to create saving pots for your kids through a variety of stocks and shares. With no minimum or regular contribution, their saving plans are suitable whatever your financial situation.
general investment account (GIA)
Finally, The Big Exchange offers a general investment account (GIA). These will suit those who want to invest more than £20,000 a year as there is no annual limit. However, any investment growth will be subject to tax.
In the future, the Big Exchange hopes to offer a pension account. This is currently not available.
How much does it cost and is my money protected?
Like all investment platforms the Big Exchange charges a fee for holding investments.
- This fee stands at 0.25%, which is among the lower end of the market.
- There will also be a fee charged by the asset manager which runs your chosen fund. According to the platform these range between 0.8% and 1%. This in addition to the platform fee.
For example, someone who invests £1,000 with the Big Exchange will pay 94p per month in fees. That is based on the 0.25% platform fee combined with 0.88% which it says is the average ongoing fee charged by its funds. This could be higher in practice.
The Big Exchange is covered by the Financial Services Compensation Scheme. This covers you for up to £85,000 in the event that the platform collapses. However, it does not cover investment growth.
Like all investments, there are risks and you should be aware that there is a small chance of losing your money.
What are the other options?
There are several other investment platforms to consider if you wish to invest in funds and particularly if you want to get into impact investing.
Some of the best-known of these include Charles Stanley, AJ Bell, Interactive Investor and the Share Centre. Find out about more investing platforms in our article that reviews the top ones here.
- None of the funds on the Big Exchange are exclusive to the platform, so it would be possible to build an ethical portfolio on the other platforms.
- Also, the choice of funds is far wider on almost all other platforms given that they are not restricted by the same criteria.
- You also have the option to directly buy shares in individual companies with these other brokers. This is not currently possible on the Big Exchange, so if this is what you want to do then it will not be the platform for you.
- However, the Big Exchange is among the cheapest on the market. For example, Hargreaves Lansdown charges 0.45% a year on funds held in its ISA. AJ Bell charges the same as the Big Exchange at 0.25%.
The main benefit of the Big Exchange however is its strong focus on sustainability and the sheer level of detail given on this specific aspect of the funds. Those looking for this sort of information will be hard pressed to find it in as much detail elsewhere.
Is the Big Exchange right for me?
For those looking to invest their money in a way which has a positive impact on the planet, the Big Exchange will be very appealing.
- It goes into far more detail on impact investing than any other platform, and the way it displays this information, with the focus on the UN goals, is very consumer-friendly and easy to understand.
- At 0.25%, its fee is also relatively inexpensive, however this is also true for some other rival platforms.
- The benefit of other platforms is that their range of funds is far wider, so you will be less restricted than on the Big Exchange. Additionally, those looking to buy shares in companies will be left wanting and will need to look elsewhere.
- However, for those investors who want a platform focused specifically on impact investing and offering easily-digestible information on its funds, the Big Exchange is definitely worth consideration.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.