It's not a dirty rotten fund ...

But lots of people want to put their money in. Melanie Bien on the rise of ethical investing

Although investment funds have suffered this year, both in terms of performance and in the amount of money attracted from investors, ethical funds have continued to grow in popularity.

"This is the year that ethical investment has become part of the mainstream," says Jean-Paul Maytum at Co-operative Insurance (CIS). "With the advent of SRI [Socially Responsible Investment], companies are realising that, particularly in a downward market, investors will vote with their feet if they do not agree with what they are up to."

While the dismal performance of the stock market has concerned investors, their ethical values have not wavered. And even though ethical funds haven't set the world alight this year – the best performing, the Aegon UK Socially Responsible Income fund, has grown 0.83 per cent over the past 12 months – some of them have still outperformed the FTSE 100. All the top 10 best-performing ethical and ecological unit trusts, as ranked by Standard & Poor's, have beaten the FTSE 100, which is down 18.3 per cent over the same period.

Since the first ethical fund – Friends Provident Stewardship – was launched in 1984, the market has expanded dramatically. There is now just under £4bn invested ethically in more than 50 funds.

There has been more pronounced growth in ethical investing in the past year, partly as a result of new launches such as Norwich Union's Sustainable Future UK Growth, European Growth and Global Growth funds. The introduction in June of the FTSE4Good Index has also helped raise awareness, though controversial stocks such as oil giant BP are listed on it.

The terrorist attacks of 11 September also led to a rise in the number of enquiries to ethical fund managers, as investors are keen to avoid anything that could be connected with terrorism or arms sales. CIS enjoyed an 8.2 per cent increase in the number of individual savings account (ISA) investors in its environmental funds between August and November, compared with the previous year.

"There has definitely been an increase in ethical investment," says Toby Belsom, analyst at Morley Fund Management, which manages Norwich Union's Sustainable Future funds. "Retail investors are developing an increasing awareness of social and environmental issues."

Interest in ethical investment really took off last year when legis-lation gave people the right to know whether their company pension scheme was committed to investing in a socially responsible way. As a result, many pension fund providers have adopted social policies across some, or all, of their funds.

The increased popularity of ethical funds is also being fuelled by a change in the previously strict approach to green investing. Not so long ago, ethical investment meant strictly avoiding any companies involved in activities of which you disapproved – for example, arms, tobacco and nuclear power. Dark-green, purist funds, which include Jupiter Ecology, Friends Provident Stewardship and NPI Global Care, offer investors the chance to do this.

But lighter-green funds socially engage with a company, trying to influence it to change its practices from the inside. Performance is not necessarily sacrificed to conscience, as was often the case with pure ethical investments. With SRI, funds tend not to put principles before returns.

The growth of SRI means the new range of funds is less strict than the dark-green variety. But, on the whole, ethical investors are still happy to put their money in them. This is because they regard investing in a firm that has some questionable practices as a positive move: it is only from "inside" that many things can be changed. Instead of taking part in demonstrations, these new protesters are using their power as shareholders to persuade companies to change their ways.

And investors are also happy because such schemes are more di- versified. SRI funds are regarded with less suspicion than dark-green ones because investors, quite rightly, argue that a wider-ranging fund means less volatility and therefore better returns.

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

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

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Reach Volunteering: Trustees with Finance, Fundraising and IT skills

    Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent