Ethical finance: co-operatives and investment

This year, the government passed proposals to allow people to invest up to £100,000 in a co-operative.

An increase in the withdrawable share capital limit (originally set at £20,000) is one of the main ways for a co-op to secure capital, in line with the third co-operative principle.

Co-operatives UK estimated this increase would be particularly useful for agricoops, and could generate an extra £5.3m within the sector.

Member capital is an important feature for co-ops as without this, larger co-operatives such as retail societies would be more reliant on private debt.

However, investments in co-operatives should not be seen as a way to reap financial rewards. While investing in a co-op can attract a small rate of return, the main function behind such an investment should be seen more as a social investment for people and communities, or a way to inject capital into a co-operative to help it develop and grow. Investments can also be between co-operatives.

Depending on the rules of the society, the investment can be as little as £1. But investments are also at risk should a co-op fail, since they are not covered by the Financial Services Compensation Scheme.

What co-operative investments are there?

Retail societies are one of the most common types of co-operatives to invest in. The Co-operative Group holds £70m, Central England £22m and Midcounties £41m. Many other retail societies offer a variety of ways for members to invest, including in branches and over the telephone. Chelmsford Star Co-operative Society is a retail co-op that is commonly invested in by other co-operatives.

Community shares in energy, pubs and local shops are one of this year’s most hyped ways to invest in co-ops. Normally, share issues are offered for an allotted amount of time to allow the purchase of a community asset. But once these ventures are up and running, many still open their doors to individual investments.

Co-operative lenders are a way to invest in the wider co-op sector. Lenders such as Co-operative and Community Finance states from the outset that funds will be invested responsibly, and can be directed to certain areas of the movement such as worker co-operatives.

International investments are a possibility too. Oiko Credit is a global co-operative that describes itself as one of the world’s largest sources of private funding to the microfinance sector. While not all those who benefit will be running co-operatives, it’s proposition is focused on social investment. Shared Interest is a UK-based co-op that invests in Fairtrade projects around the world.

Independent financial advice can also help find ethical investments. The Ethical Investment Co-operative is one such group of advisers that has co-operatively come together to promote ethical investment in the UK.

This article is for information purposes only and does not represent financial advice. For more information on individual investments in co-operatives, speak to the Money Advice Service: www.moneyadviceservice.org.uk/en/articles/withdrawable-share-capital