David Prosser: Principle before profit? The two are not mutually exclusive

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The Independent Online

Outlook The ethical investment industry has not always been taken seriously by hard-nosed City professionals focused only on performance data. Though there are several fund management firms that have long specialised in ethical and environmental investors, with many more offering the odd product or two, the mainstream view in the City might be characterised thus: that picking stocks on the basis of anything other than expectations about how they might perform is a practice strictly for hippies.

Despite such scepticism, the ethical movement has grown. At the beginning of 2000, some 200,000 retail investors held about £2.4bn of ethical savings products according to Eiris, the consultant that specialises in this area. By the beginning of this year, the number had swelled to 750,000 with assets worth £9.5bn.

Might the BP affair result in another big leap in these figures? Very possibly – and not just because of the concern and anger about the environmental impact of the oil major's accident in the Gulf of Mexico.

Few people like the idea of their savings – whether directly or via a pension fund – being invested in companies of whose activities they disapprove. But, understandably, a great number of folk also take the view that they are not wealthy enough to put principles before profit, to take the risk that ruling out investments in certain types of company might limit the returns they earn on their savings.

The BP case might just square that circle. This is a company that has declined in value by more than £40bn as a direct consequence of the risks of the business in which it is involved. Most savers will have been exposed to that loss through their pension funds. For those in ethical products, which typically avoid oil companies on environmental grounds, not having been invested in BP has hardly carried much of an opportunity cost.

This is not just a happy coincidence for the ethical investment sector. The very issues that turn some people off companies such as BP are also those that represent the biggest risks for all investors, whether motivated by such concerns or not. The oil industry is vulnerable to financial damage from its environmental impact in both the short and longer term. Tobacco companies face a backlash over the side effects of their products. Businesses that exploit the developing world face reputational risk. And so on. Suddenly, ethical investment doesn't look like such a niche after all.