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; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
REX/Eye Candy
science
News
A photo of Charles Belk being detained by police on Friday 22 August
news
News
i100
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
Arts and Entertainment
Amis: 'The racial situation in the US is as bad as it’s been since the Civil War'
booksAuthor says he might come back across Atlantic after all
Extras
indybest
Life and Style
Google Doodle celebrates the 200th birthday of Irish writer Sheridan Le Fanu
tech
Arts and Entertainment
Vinyl demand: a factory making the old-style discs
musicManufacturers are struggling to keep up with the resurgence in vinyl
News
i100
News
In Eternal Sunshine of the Spotless Mind Jim Carrey and Kate Winslett medically erase each other from their memories
scienceTechnique successfully used to ‘reverse’ bad memories in rodents could be used on trauma victims
Arts and Entertainment
Singer Pixie Lott will take part in Strictly Come Dancing 2014, the BBC has confirmed
tv
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

    C# Developer (C#, ASP.NET Developer, SQL, MVC, WPF, Real-Time F

    £40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...

    C# Swift Payment Developer (C#, ASP.NET, .NET, MVC, Authorize.N

    £45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...

    DevOps Engineer - Linux, Shell, Bash, Solaris, UNIX, Salt-Stack

    Negotiable: Harrington Starr: A fast growing Financial Services organisation b...

    Trade Desk FIX Analyst - (FIX, SQL, Equities, Support)

    £50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...

    Day In a Page

    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone
    Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

    What is the appeal of Twitch?

    Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
    Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

    How bosses are making us work harder

    As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
    Manufacturers are struggling to keep up with the resurgence in vinyl records

    Hard pressed: Resurgence in vinyl records

    As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
    Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

    A tale of two writers

    Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
    Could a later start to the school day be the most useful educational reform of all?

    Should pupils get a lie in?

    Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
    Prepare for Jewish jokes – as Jewish comedians get their own festival

    Prepare for Jewish jokes...

    ... as Jewish comedians get their own festival
    SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

    A dream come true for SJ Watson

    Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
    10 best cycling bags for commuters

    10 best cycling bags for commuters

    Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
    Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

    Paul Scholes column

    Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
    Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

    Kate Bush shows a voice untroubled by time

    A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
    Robot sheepdog technology could be used to save people from burning buildings

    The science of herding is cracked

    Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
    Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

    This tyrant doesn’t rule

    It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?