Going ethical may salve your conscience – but will it help you to turn a profit?
It's all very well, investing in 'green' firms, but it's far from simple. Julian Knight and Chiara Cavaglieri untangle investors' options
Sunday 08 November 2009
Public attitudes to ethical investment are changing. These days, many investors are as concerned about investments that sit comfortably with their environmental and social principles as they are about securing healthy returns. As a result, ethical investment has come a long way from the launch of the first, the F&C Stewardship Income Fund, back in 1987.
At the start of National Ethical Investment Week, new figures show that 10 years ago only £1.5bn was invested in ethical funds, today that figure stands at around £7bn.
"Buying a green and ethical investment is a positive choice. Your money not only works hard for you, but can also help society and the environment," says Penny Shepherd, the chief executive of UK Sustainable Investment and Finance.
However, ethical investing still pales in comparison with the £400bn invested in non-ethical funds in the UK. So why are we still hesitant to push our money into greener investments? For many people, understanding exactly how to invest money ethically is the biggest hurdle.
Ethical banking is faring well in the aftermath of the banking crisis, which has led many people to lose faith in high-street banks. The Co-op group reported a 17 per cent increase in pre-tax profits in the six months to July and its financial services unit saw a 50 per cent rise in the number of customers opening current and deposit accounts.
Credit unions, which are locally run, for the benefit of members, are another option for ethically conscious cash investors. An extensive range of products is on offer at credit unions, ethical banks and building societies, from current accounts and individual savings accounts (ISAs) to child trust funds. It is quite feasible for investors to have all their financial services met by these institutions. Rates can be competitive too – Co-op's three-year, fixed-term deposit account pays a healthy rate of 4.5 per cent.
When it comes to seeking greater returns on the stock market, however, investors will find things are more complicated. They can either take it upon themselves to handpick and research individual stocks and companies, or, more commonly, take a back seat and invest in ethically screened funds where this research has been done for them. These actively managed unit trusts and open-ended investment companies (Oeics) work in the same way as standard funds, buying baskets of shares in a particular sector, but the fund
manager will run checks on the companies chosen for investment.
As things stand, nearly 100 green and ethical funds are available, covering corporate bonds, managed funds and equities. The Schroders Global Climate Change fund, for example, invests in companies that provide goods and services designed to limit climate change. The Jupiter Ecology Fund, managed by Charlie Thomas, has an in-house environmental team, checking specific criteria to ensure that they only invest in firms committed to protecting the environment.
Ethical funds like this are often labelled dark green or light green. Light green, or positive, funds seek out shares in firms which pursue some aspect of ethical or environmental policy.
"Positive screening does not reduce the universe of available shares," says Dr Robin Keyte, from Well Money Clinic, an independent financial adviser. Typical positive screens might be community involvement; employee welfare rights; environmental policy, packaging reduction, sustainable forestry."
At the other end of the scale, "dark green" funds will employ negative screening to exclude shares of firms with certain activities, such as alcohol production, animal testing, environmental damage or gambling. Fund managers may also use their positions as shareholders to engage with the companies in which they invest and try to encourage more ethical practices.
Many pension plans also offer access to these ethical funds, including Aegon Scottish Equitable, Aviva, Friends Provident and Standard Life. Company pension plans will often offer an ethical option for employees but, if not, investors can expose themselves to ethical funds through a self-invested personal pension plan (Sipp).
Investors wary of actively managed funds may prefer to track a stock market index of ethical companies. In 2001, the FTSE4Good UK index was introduced to allow investors to invest in socially responsible firms. But difficulties in determining which companies should and should not be included mean that potentially controversial firms such as BP and Tesco can be considered suitable – which may not sit comfortably with many ethical investors. This highlights the difficulty for many wannabe ethical investors in comparing one ethical fund to another.
Nick McBreen of IFA Worldwide Financial Planning says: "The inevitable consequence of heightening awareness and demand for ethical or socially responsible investment is that the label will become over-used or mis-used."
Climate change funds can often fall
LONG HAUL 'I BELIEVE MY GREEN FUND WILL DO WELL – IN TIME'
Ethical investing is not exclusively for those looking to ease their conscience. Many hope to reap the financial rewards of being green too.
Dr Jan Kiso (above), 38, originally from Germany but now living in Chelsea, London, began ploughing his money into the Jupiter Ecology Fund three years ago, through an ISA investment. The fund specialises in six investment themes: clean energy, water management, green transport, waste management, sustainable living, and environmental services.
"I was looking to take advantage of the low-carbon technology movement, and Jupiter was the only fund that actively focused on the issues I was interested in," he says.
For Jan, the impulse to invest in the Jupiter Ecology Fund was financial rather than ethical. As an employee of the Department of Energy and Climate Change, his interest in this type of fund is perhaps understandable, but his motivation was first and foremost the potential for high returns. Despite this, the fund's performance in the past few years has been sorely affected by recent stock-market lows, recording a fall of 13.6 per cent in 2007-08 and growth of just 1 per cent in 2008-09.
Although concerned about recent performance, he is content to be in it for the long haul and prepared to leave his money invested for at least 10 years, when he is optimistic that things will have improved.
"I wanted a fund that embraces the whole idea of sustainability – an area I believe will outperform the market in time," he says.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Buying property overseas? Check out these hotspots
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
Questions of Cash: I've been chased for a phantom debt. What can I do to stop it haunting my credit status?
Offset mortgages: How to save thousands of pounds and reduce the term of your home loan
My Travel Cash card charges a punitive 'inactivity' fee of €2.50 a month
- 1 What marriage would look like if we actually followed the Bible
- 2 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 3 'Heartbreaking' Syria orphan photo wasn't taken in Syria and not of orphan
- 4 Bob Geldof offers to take four refugee families into his home 'immediately' as he condemns humanitarian crisis as a ‘f**king disgrace'
- 5 Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition
Britain to take more refugees as Cameron bows to pressure after more than 250,000 back our campaign
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Make your voice heard: Sign The Independent's petition to welcome refugees
iJobs Money & Business
£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
Day In a Page
This five-bedroom home in Sutton Coldfield is arranged over three floors, with a detached garage to the rear and a driveway at the front of the property.
In an elevated position above the bay, this four-bedroom home offers sea and headland views. There is a decked balcony and sun terrace - plus coastal walks on the doorstep.
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.