Ethical investment funds not always as green as they appear

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The Independent Online

One quarter of so-called socially responsible investment (SRI) funds sold in the UK have a higher carbon footprint than their more mainstream rivals, according to a report published by the environmental research organisation, Trucost.

The research assessed the carbon footprint of each company held within 185 investment funds' portfolios, giving each fund an overall carbon rating.

Although SRI funds tend to sell themselves on the premise that they invest more heavily in environmentally friendly companies - and screen out industries such as tobacco, gambling and nuclear stocks - Trucost's research revealed many SRI funds are not as green as they first appear.

Jupiter's Environmental Income fund, for example, was ranked 179 out of 185 funds surveyed, in spite of having a mandate which pledges to invest "in companies whose activities are compatible with sustainable development either through the products or services they provide or through the processes they operate".

Standard Life's UK Ethical and CIS's sustainable leaders' fund also both came within the bottom 25 funds in the survey.

However, the ethical investment industry backs companies whose activities do not contravene pre-defined criteria, though funds themselves do not set out to be carbon neutral.

Nevertheless, of the 185 funds reviewed, the three with the lowest footprints were all SRI funds: Prudential Ethical Trust, Axa Ethical and Sovereign Ethical.

The report found that the carbon footprint of funds varied dramatically, with the most carbon-intensive funds in its sample - Invesco Perpetual's High Income fund - having a footprint more than 10 times greater than the Prudential Ethical Trust. Simon Thomas, chief executive of Trucost, said: "There is a huge range of carbon footprints from the best to the worst funds in each category. So if investors want to invest in carbon-efficient funds - and the evidence is that they increasingly do - they are now able to assess whether the fund really is less carbon intensive than its peers.

"We expect the impact of carbon costs to increase in future years as regulation increases and this will inevitably have a negative impact on the performance of those companies with relatively large carbon footprints compared to their peers."

Emma Howard Boyd, head of socially responsible investments at Jupiter, said: "The Jupiter Environmental Income Fund invests in companies that are minimising their environmental and social impact. To select these companies we assess them against a broad range of criteria, not just its carbon footprint.

"Ahead of the report's publication we understand from discussions with Trucost that because of a decision to reduce exposure to utilities on financial grounds, the fund now has one of the lowest carbon footprints of all the funds they studied."