Peer-to-peer lending is “far better” than environmental, social and governance (ESG) funds for supporting good causes and offering great returns, according to P2P analysis firm 4th Way.
The research and ratings firm said that the direct benefit to ethical companies by investing in an ESG fund is “negligible to zero” whereas money put into ethical P2P opportunities goes directly to support those businesses.
ESG is a growing trend in the investment space, with younger people in particular keen to put their money into companies that align with their values. Companies typically eschewed by ESG funds include arms manufacturers, oil and gas producers and animal testing companies.
4thWay said that some P2P platforms, such as Abundance, Downing Crowd, Folk2Folk and Relendex, offer lending against renewable energy projects and others, such as Assetz Capital and Proplend, allow investors to lend specifically to care home operators, retirement homes, nurseries or local regeneration projects.
The firm said some platforms seem to do “really well” at taking their responsibilities to borrowers seriously, while not neglecting their investors. He noted that P2P lending is called “social lending”, partly as most platforms offer borrowers better support, service and terms than banks.
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“P2P lending is far better than ESG funds if you want both great returns as well as to truly support better causes while you invest,” 4thWay said in a blog on its website.
“Picking individual loans based largely on ESG factors is going to be difficult, probably. But remember that you’re helping local businesses when you spread your money widely and invest in many other loans, such as your pub on the corner.
“In terms of investing with responsibility, this is probably more worthwhile than buying existing shares in a conglomerate from another investor.”