How to get a warm glow this Christmas

The pounds 4,000 that Ian McGlynn, Anita Roddick's friend, invested in the Body Shop 21 years ago is now worth pounds 140m. But investments in individual companies with serious ethical ambitions are more likely to end up worthless. Shares in many of them should be thought of not as an investment, more as a donation that just might produce some return in the long run.

Some do produce reasonable returns, though. Windcluster had a share issue in 1992, raising pounds 250,000 from 35 investors. The company operates small groups of wind generators that blend into the background environment, producing renewable energy.

The business is now in profit and the company is considering ways of repaying and rewarding its initial investors, possibly through large dividend payments or a share buy-back.

Malcolm Lynch, a solicitor who handles many ethical companies' share issues, points out that benefactors can obtain tax relief for some investments. "New share issues are very risky, but where share issues are part of the Enterprise Investment Scheme [EIS], an investor can obtain 20 per cent income tax relief on an annual investment of a minimum of pounds 500 in one company, and a maximum of pounds 100,000."

Only a few share issues qualify for EIS relief, which is restricted to unquoted private companies that register for the scheme with the Inland Revenue.

There is also another possible tax "benefit": ethical shares that make a loss, as many of them will, could be used to offset a capital gains tax liability elsewhere.

Current ethical share and loan stock issues include:

q Sherwood Environmental Village Ltd. A former colliery site is being converted into a 95-acre low-energy, sustainable community, including homes, businesses, leisure facilities and a conference centre. It will have its own biomass energy generator, producing heat and power from woodchip and crops without carbon dioxide emissions, and some homes will use solar panels. Investors prepared to put in between pounds 50 and pounds 20,000 are being sought, but the shares cannot be traded, money cannot be withdrawn until at least 2005, and if any dividends are ever paid they will be small. Telephone 01623 863887.

q And Albert Plc. A successful "fair trade" retailer is seeking pounds 1m from its latest share issue to finance expansion of its nine shops. The company is Christian-based, and was founded by a former Salvation Army officer. It is helping producers in Africa and the Far East to provide art and craft items for sale in Britain, to be bought at a "fair" price. The company has an annual turnover in excess of pounds 1m and the shares will be listed on the Ofex small companies' exchange. The company is optimistically predicting a profit of pounds 250,000 on a turnover of almost pounds 3m within two years. Telephone 01482 868286.

q Industrial Common Ownership Finance Plc. Icof is completing its second major share issue, aiming to raise pounds 1m to lend to workers' co-operatives - small businesses owned and managed by their own workers. The company aims to pay dividends in line with the rate of inflation. The minimum investment is pounds 250. Icof was established in 1973, and the loan fund is professionally managed. A previous share issue of pounds 550,000 in 1987 was used to finance 59 co-operative businesses. Telephone 0121 523 6886.

q Out of this World is a retail co-operative issuing loan stock (similar to bonds, rather than shares). It runs a chain of four stores selling organic and whole foods, green products and cosmetics not tested on animals. The company wants to raise pounds 200,000 to open eight shops. The loan stock is offered as five-year bonds paying 5 per cent, but the co-operative is inviting subscribers to opt for a lower return if they can afford it. The co-op expects to enter profit next year. Telephone 0191 272 1601.

q Radical Routes Ltd. This network of housing and workers' co-operatives is to issue pounds 200,000 of loan stock in February next year. The investments will be used to finance housing co-ops in rural areas, probably including the Talamh community in Lanarkshire, which hosts Earth First and other new age gatherings. Telephone 0121 551 1132.

q Notting Hill Housing Group is a London housing association offering loan stock paying a return of up to 5 per cent. Money received goes towards the cost of charitable work for tenants, such as improving facilities for people with disabilities, and also into housing local homeless people. Telephone 0181-503 1288.

q The Centre for Alternative Technology at Machynlleth in North Wales does not currently have a share issue open, but it does offer a facility to acquire shares from existing investors. Telephone 01654 702400.

q Several steam railway companies have share issues on offer, including some that give the shareholder free tickets on the railway, which might be an ideal Christmas present to a railway enthusiast. Contact Ffestiniog Railway (01766 512340), which is still offering shares under the original 1832 issue; Kent and East Sussex Railway (01580 765155); Severn Valley Railway (01299 403816); and Great Central Railway (01509 230726).

q Ethical companies seeking finance are featured in the newsletter of the Ethical Investment Research Service (Tel: 0171-735 1351); subscription cost is pounds 12 per year.