Is ethical investment really that ethical?

Ethical funds must do more to make sure firms behave responsibly or risk losing investors’ confidence

A major new report published today suggests that some ethical funds are failing to meet their objectives because they don’t persuade big firms to improve bad practices.

Ethical funds attract investors by refusing to invest in so-called “sin” stocks such as pornography, alcohol and gambling. But research by Fair Pensions shows that many ignore equally contentious issues such as child labour, fossil fuel and support for oppressive regimes.

And, far from being a power for change, as some investors presume, the research into the “responsibility” of ethical funds reveals that almost two-thirds can demonstrate no evidence of actually engaging with companies on ethical issues.

Christine Berry, head of policy and research at FairPensions, said: “Savers choosing ethical products want to know that their voice is being heard and their money managed in a way which reflects their values. Our findings suggest that the ethical investment industry should be doing a lot more to ensure it stays relevant to the issues that matter to its customers.”

The research shows how difficult it is for people to find out what an ethical fund actually invests in. Some 45 per cent of funds do not publish their full holdings. The study also highlights the difficulty of tracking down an ethical fund which fully reflects your beliefs. For instance, although 84 per cent of funds refuse to invest in porn, only 11 per cent screen out child labour.

And ethical providers are not doing enough to find out what investors what from their funds, the research says. Only one-in-five ethical firms uses customer surveys to learn more about investors’ wishes.

On top of that, a substantial minority of ethical providers do not regularly review their ethical criteria, leaving them open to accusations of falling behind in representing investors’ wishes.

The ethical investment market has almost trebled in size in the last decade and now accounts for more than  £11.3bn invested in ethical funds. Research published last month shows that its popularity is growing, with some 45 per cent of UK adults wanting at least some of their investments to take green and ethical considerations into account, and 15 per cent wanting all their investments to do so.

Jonathan Chilvers, a private investor from Leamington Spa who saves with Family Investments, said he wants more from ethical funds. “I want my fund to publish all the companies it holds,” he said.

“Ethical funds should both screen their funds and engage with the companies they do hold.  I would like them to invest in a mixture of intrinsically ethical companies (such as renewables) as well as large companies with reasonable corporate social responsibility and well-documented supply chains. The trouble is that none of the big companies is perfect, but it’s not really realistic not to invest in them at all.”

“Savers should be asking themselves why they invest in ethical products,” said Ms Berry. “If it’s because they want to have a clear conscience, knowing that a narrow band of unethical companies aren’t included in their portfolio, then modern-day ethical investing probably works for them.

“But if they’d like to see the power of their money used to change the behaviour of corporations, then they need to ask more questions of their provider,” she added.

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

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

    'The economic collapse has happened. What is at risk now is democracy...'

    If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
    The science of swearing: What lies behind the use of four-letter words?

    The science of swearing

    What lies behind the use of four-letter words?
    The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

    The Real Stories of Migrant Britain

    Clive fled from Zimbabwe - now it won’t have him back
    Africa on the menu: Three foodie friends want to popularise dishes from the continent

    Africa on the menu

    Three foodie friends want to popularise dishes from the hot new continent
    Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

    Who will fill Donna Karan's boots?

    The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
    10 best statement lightbulbs

    10 best statement lightbulbs

    Dare to bare with some out-of-the-ordinary illumination
    Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

    Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

    Briton pumped up for dream meeting with world No 1
    Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

    Nick Bollettieri's Wimbledon Files

    It's time for big John Isner to produce the goods to go with his thumping serve
    Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

    Dustin Brown

    Who is the German player that knocked Nadal out of Wimbeldon 2015?
    Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

    Damien Martyn: 'England are fired up again, just like in 2005...'

    Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test
    Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

    Twins have a mountain to climb during Tour of duty

    Yates brothers will target the steepest sections in bid to win a stage in France
    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy