Anti-war? Then switch your investments

There is another way the mass of weekend protesters can show their feelings about war, says Tom Tickell. They can move their investments into the swiftly expanding ethical market with environmentally kindly holdings
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The Independent Online

The massive pro- tests by millions of people in London and many foreign cities show the depth of feeling against the threat of a war on Iraq. But a growing number of those protesters are realising they can vent their feelings another way, by investing in ethical funds, which avoid shares in companies making arms as well as tobacco manufacturers, pharmaceutical companies and those organisations involved in animal testing.

The massive pro- tests by millions of people in London and many foreign cities show the depth of feeling against the threat of a war on Iraq. But a growing number of those protesters are realising they can vent their feelings another way, by investing in ethical funds, which avoid shares in companies making arms as well as tobacco manufacturers, pharmaceutical companies and those organisations involved in animal testing.

There are more than 40 unit trusts and investment trusts in what the City calls the SRI (socially responsible investment) sector, and a mass of life and pensions also conform.

When the first ethical fund, Stewardship Trust, started 18 years ago, the City viewed the idea as amiably eccentric. But the latest figures, from early last year, show 470,000 people had holdings in UK ethical funds then worth £3.8bn.

Setting up financial no-go areas inevitably means narrowing the funds' investment range, so the unit trusts and OEICs (open-ended investment companies) involved will have a higher risk profile than a standard tracker fund. But comparing ethical funds' performance against each other has become easier now there is a special ethical fund index, the FTSE4GOOD.

Martin Clarke, the Co-operative Insurance Services director of life and savings, said: "Circumstances such as troops leaving the UK for Iraq, are making many people think more closely about their values and beliefs and how they can put these into practice. Ethical unit trusts, such as our CIS Environ, provide consumers with the choice to reflect these beliefs through investment by avoiding the oil and arms sectors. The ethical sector offers a range of options for customers who want their money to reflect their beliefs."

The CIS Environ fund also looks favourably on those companies which it regards as exhibiting best practice in limiting environmental damage. This puts it firmly in what is known as the dark green end of SRI. There are three grades on this classification: light, medium and dark green.

The financial adviser Holden Meehan says light-green provides a portfolio representative of market sector weightings in the conventional market place. The shares chosen will be in the leading 200 UK companies, and companies of similar size in Europe and North America. Government securities will be included if income is required. The "best of sector" approach seeks out companies in each sector which exemplify the best environmental and social practice. Tobacco, poor human rights, environmental exploitation, armaments and animal testing are excluded as far as possible.

Medium-green investments are drawn from the All- Share Index with limited FTSE 100 exposure, in the main, exposure to Mid 250 and similar-sized companies in Europe and North America, plus limited Japanese and other markets. Some exposure to oil, pharmaceuticals and banks is permitted.

Dark-green investments are drawn from the Mid 250 and Smaller Company indexes, and there is no attempt to be representative of the conventional market place. A higher-risk profile allows selection of companies contributing significantly to the ethical objectives adopted. The main exposure overseas is to Europe and North America. Exposure to oil, pharmaceutical and banking stocks is extremely limited.

Anna Bowes, of the independent adviser Chase de Vere, which also specialises in the sector, says: "Most people go for the light-green strategy, trusts which filter out companies directly involved in arms, alcohol, tobacco and gambling, or firms doing animal testing on cosmetics. Managers may put funds into businesses some investors dislike, such as banks, or pharmaceutical companies, but only those with a good record. This 'best of sector' approach means trusts could put money into oil companies with a strong presence in the renewable resources field, but not others."

A poll by the Stewardship Trust shows that people like the approach. Most of them are prepared to invest in companies which produce greenhouse gases, provided they are trying to develop alternatives. More than three-quarters of the ethical investors questioned had no objections to investing in oil companies and car manufacturers on that basis.

The dark-green approach, adopted by groups such as the Jupiter ecology fund, is to opt into areas such as renewable energy resources, as well as avoiding those people do not like. That restricts their holdings and investment areas still further, so they are even higher-risk than the others. But they believe investors in this area are more concerned with investments they can feel comfortable about, rather than maximising the return on their money.

Friends Provident, the former mutual now listed on the stock market in its own right, claims to reduce the risks by going in for "constructive engagement". It tries to nudge companies into using existing "brownfield" or previously used sites for refuse rather than using new greenfield alternatives, and to set up codes of conduct for subsidiaries in third world countries. Friends Provident has considerable financial muscle, so it can be more than the pious public relations exercise cynics might expect. "We recognise the long-term interests of our stakeholders are best served by acting in a socially responsible manner," a Friends Provident spokesman said.

Anyone planning to move into ethical investment through unit trusts, investment trusts, life policies or pension plans, needs to work out which of the approaches to choose. Specialist independent advisers such as Chase de Vere or Holden Meehan are a good starting point.

The investment scene looks distinctly gloomy, although the likelihood of war with Iraq is only part of the story. Massive cuts in life company bonus rates reflect the stock market's existing problems and may cause more problems in themselves. The FTSE 100 index has dropped by 7 per cent in the past three weeks and is almost 37 per cent down on its peak three years ago. So it takes bravery to invest, particularly if you are nursing losses elsewhere and are looking to make an ethical stand.

But Amanda Davidson, of Holden Meehan, believes patterns are about to change. "Lawyers and the blame culture have had a devastating effect in winning cases against cigarette companies, pharmaceutical businesses and brewers in America," she says. "Britain looks as if it's going the same way. You can't open a paper without reading of the danger of global warming and the world's ever-shrinking resources. So legal and political pressures may make the big polluters less profitable, and new tax policies may appear to help the recycling market. The prospects for ethical funds look bright."

People may see the intellectual virtues of investing in a downturn, but feel uncomfortable about doing so, in ethical funds or anywhere else. Regular savings plans, which commit you to putting away perhaps £30, £50 or £100 a month, can make it easier. Each payment buys extra assets, at possibly knockdown prices. Not every company may survive, but regular savings make a lot of sense for trusts with a wide spread of holdings. Investing when markets are wobbly may be difficult, but the thought of putting away funds with a good conscience may ease the pain.

Holden Meehan Ethical Guide, on 0800 7314505;

Chase de Vere. Investment Guide, on 01225 469371.

'I can do well and feel good in the process'

Fred Matthews, a retired postman and café owner, invested in the CIS Environ Fund five years ago. He is still happy he did, though the fund's value has dropped by 30 per cent.

Share prices are likely to recover, he believes, but he wants to feel morally as well as financially happy with his investments when they do.

"I've always wanted to avoid arms companies," he says. "I grew up in the war in Manchester and I never forgot the bomb that landed within 100 yards of my house, killing two of my school friends. That horror of weapons has remained with me, even after my two years' National Service.

"Now there are all the worries about pollution, nuclear waste and the way humanity is damaging its own environment, and even its prospects for long-term survival."

The CIS Environ Fund is a dark-green fund, investing only in groups active in improving the environment, by manufacturing equipment to cut back pollution, or improving health, for instance.

Does that mean investors will lose to more broadly based funds? Mr Matthews does not think so. "Lawyers are keen to sue companies which damage people's health or increase pollution," he says. "Those cases bring big fines and a lot of bad publicity. In the long term, that boosts the market for businesses taking a positive approach in trying to improve things, and that helps my investments. So I can do well and feel good in the process."

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