HSBC claims to be the green bank offering online statements, M&S looks to reduce its packaging and proclaims fair trade cotton, and energy companies vie to woo the green customer. Global warming is an issue that is discussed with as much authority as the latest soap. It’s hard to miss these messages; they are a part of our daily life. The ethical purchasing index shows ethical spending is worth £29.6bn to UK economy – comfortingly, this is more than tobacco and booze!
Yet people who readily re-cycle and positively choose organic food and fair-trade goods often do not realize that their consumerism can make a huge impact by the way they invest their money. There is curious disjoint in an investor’s mind as to where their money actually ends up. This is accompanied by the myth that if you invest ethically then you can’t do good and make money.
And this is a myth. Even looking historically the average UK ethical trust beat the average UK trust by 13% from 1991-1996. In last 12 months it is increasingly common for SRI funds to be top performing in their sector with the Coop Leaders Trust topping the UK all companies sector over 12 months earlier this year. Now £6.1 billion is invested in SRI (socially responsible investment) and this sector has shown regular increases virtually every year since 1989 when the size of the sector was only £200k. The rate of increase of funds and interest in them has grown and there are now 90 funds of which 40 are unit trusts.
Each fund will be different in terms of focus. Broadly funds are split between ethical funds which tend to exclude (typically arms) and environmental which invest in companies that positively benefit the environment such as in water management. An investor needs to find a fund that meets with their own ethical aims and objectives and then consider how well placed it is in terms of delivering returns.
As with any sector, there are good and bad performers. Curiously, returns are not determined by how restrictive a mission statement of a fund is. What is much more relevant is the quality of research and fund manager.
It is an exciting time to be an ethical investor as there is a glut of new funds coming to the market with a variety of different options. There are some interesting if volatile alternative energy funds as well as the less risky corporate bond funds. Sorting through the options is increasingly becoming a specialist field and investors may feel they need help before changing the direction of their portfolio. Baigrie Davies has set up a “how to green your investments” service to help investors. Details can be found by e mailing amanda.davidson@baigriedavies.co.uk
Indeed an investor needs increasingly to consider whether their investment is safe if it does not take into account climate change. The traditional conventional investments that investors could rely on in the past no longer look so safe if they are not considering one of the greatest impacts on our world today that is unlikely to diminish its impact tomorrow. And investing for the future and future returns rather than historic performance is what is key to investors today.
It is clear that not only is ethical investment is here to stay but that we may be at a pivotal point. Our recent fund manager research shows that SRI fund managers expect conventional fund managers to take the lead from their SRI counterparts increasingly in the future over such issues as climate change. The skills that SRI fund managers have demonstrated will be more in demand both from investors and fund management groups.
Amanda Davidson is a Director of Baigrie Davies, independent financial advisers.
E mail Amanda.davidson@Baigriedavies.co.uk; Tel 020 7786 2000; www.baigriedavies.co.uk
Search for an IFA using the confidential service service from unbiased; Find an IFA. With currently around 9,000 member IFAs available on our database UK-wide.