Saving cash - and the Earth

The subtle tweaking of the Business Expansion Scheme (BES) in last week's Budget may not have grabbed headlines like the more dramatic changes to the scheme announced last year, but it should nonetheless lead to greater choice for environmentally conscious investors.

The BES tax relief scheme was first introduced in the 1980s to encourage investment in private businesses, primarily in the small and medium-sized enterprise (SME) sector.

Last year's budget extended the scheme for seven years and boosted the maximum investment from €31,750 to €150,000.

Because of an amendment announced in Budget 2008, it should now become much easier for recycling companies to get BES funding. Rather than having to wait until they receive grant assistance, recycling companies will simply have to get their business proposal certified by an industrial development agency or county enterprise board to avail of the scheme.

A BES fund dedicated entirely to green investments (including recycling activities) has already sprung up on the Irish market - the 2007 Simple.ie Green BES Fund.

The fund will invest across a range of companies operating in different industries and falling into one of two categories: "green companies", ie those that address an environmental problem, for example companies focused on renewable energy sources such as solar or wind power; and "clean companies", which may not be focused on solving a particular environmental issue, but are responsibly managing their environmental impact.

Individuals can invest anything from €10,000 up to €150,000 in the Green BES Fund. A key attraction is that such investments qualify for relief at the person's higher rate of tax.

According to BVP Investments, which runs the fund, an investment of €100,000 will only cost €63,000, after factoring in tax relief and a once-off 4 per cent commission.

BVP is targeting investment returns of 15 per cent a year (including tax relief) during the five-year investment period. The closing date for the fund is December 31st.

Potential BES investors are sometimes discouraged by a perception that such schemes are only suited to very high networth individuals, and by the fact that investing in start-ups or early-stage companies can be a risky strategy.

However, by investing through a BES fund, individuals can potentially access attractive returns without having to put all of their eggs in one basket. "We'd certainly be diversifying the portfolio to bring down the risk," says Elliott Griffin, managing director of BVP.

"Some of the companies will be well-established with good turnover and profits and will obviously be lower-risk investments, and then others will be emerging and beginning their growth phase."

Griffin feels that green funds have become more popular with serious investors in recent years because the technologies being developed "are now realities".

"Companies now have working tangible assets like turbines and solar panels, not just ideas," he says. "We believe that the recent strong performance of environmentally focused companies is just the start of a green business boom.

"The strong investment returns enjoyed by green funds in recent years provides compelling evidence that those companies who adopt sustainable practices will reap the financial rewards."