It is surprising, then, that only a handful of unit trusts are available to those people who put ethical considerations above the desire to maximise returns.
For those investors, two questions need answers. First, what are the ethical criteria of different funds? Second, what is the investment performance and potential? As the table shows, ethical funds have turned in mixed performances, but no more mixed than unit trusts as a whole. Amanda Davidson, of Holden Meehan, an independent financial adviser, says the poor performance of some ethical unit trusts has been blamed on the limited range of shares from which the fund manager can select. But she adds: "As more people become aware of ethical and environmental issues they are increasingly using the products and services provided by green and ethically sound companies, which is obviously helping the performance of those companies. It is no longer necessary to accept poor performance if you want to invest with a conscience."
Different trusts have their own ethical criteria. For example, most ethically- minded investors want to avoid companies involved in the arms trade and companies that invest in and trade with countries with oppressive regimes. Some people disapprove of gambling and many more are vehemently against anything to do with the tobacco industry.
It is not just a company's trading activities that may or may not make it an acceptable investment. There is also the question of how it operates. Does the company, for example, have good employment policies?
There are few, if any, companies that would live up to any one individual's ethical criteria. So you have to compromise, and compromise is inevitable when choosing unit trusts, which invest in a range of companies.
But before committing your money, check your prospective fund's ethical criteria and investment remit. Get a copy of the latest annual report to see where the money is going.
The difference between trusts is highlighted by two funds, NPI Global Care and Eagle Star Environmental Opportunities. NPI holds a number of companies chosen for their positive environmental contribution but it also operates strict ethical criteria. Pornography, animal research, and meat and dairy production are excluded. Alcohol and gambling are also excluded in the main. "We look for socially progressive companies with a business ethic investors want to back. They should be open to social and environmental auditing," says Mark Campanale of Global Care.
The Eagle Star fund, however, though environmentally led, professes no general ethical criteria. "We look for companies that take a positive attitude to environmental issues. Our remit is broader than most of the other similar environmental funds," says Jonathan Barber, who looks after the UK side of the Eagle Star fund. He cites Greenway Holdings, a company that collects and recycles used oil from garages, as an example of a company that is taking positive action to improve and protect the environment. The fund also has holdings in some bigger, well-known companies. For example, it holds Lucas Industries, a leader in diesel technology, arguably cleaner than other technologies. In the past the fund had holdings in National Power, a company that is not obviously environmentally friendly but which has spent a lot cleaning up sulphur dioxide emission.
None of these companies are likely to feature in NPI Global Care's portfolio, which eschews anything to do with carbon-based industries, those based on coal, gas and oil. It is also hostile to the conventional car.
A useful source of information on ethical investment is the Ethical Investment Research Service. A subscription to its quarterly newsletter costs pounds 12 a year. It will send a free list of advisers who are well briefed on ethical investments. Write to Eiris Freepost, London, SW8 1BR, or phone 0171 735 1351.
How ethical funds have fared
Value of pounds 1,000 after 1 and 5 years in ethical and environmental unit trusts*
Fund 1 year 5 years
Abbey Ethical pounds 1,104 pounds 1,859
Abtrust Ethical pounds 1,194 N/A
Acorn Ethical pounds 1,061 pounds 1,806
Allchurches Amity pounds 1,108 pounds 1,628
CIS Environ pounds 1,108 pounds 2,084
Clerical Medical Evergreen pounds 998 pounds 1,416
Credit Suisse Fellowship pounds 1,310 pounds 1,927
Eagle Star Environmental Opps pounds 1,095 pounds 1,938
Framlington Health pounds 1,799 pounds 4,175
Friends Provident Stewardship pounds 1,138 pounds 1,846
Friends Provident Stewardship Inc pounds 1,067 pounds 1,823
Friends Provident Stewardship N Am pounds 1,171 pounds 2,102
Jupiter Ecology pounds 1,136 pounds 1,813
NPI Global Care pounds 1,181 N/A
Scottish Equitable Ethical pounds 1,136 pounds 1,751
Sovereign Ethical pounds 1,287 pounds 1,777
TSB Environmental Investor pounds 1,111 pounds 1,803
Average ethical unit trust pounds 1,176 pounds 1,983
Average of all UK unit trusts pounds 1,093 pounds 1,973
FT-SE 100 index pounds 1,203 pounds 1,721
FT-SE All Share index pounds 1,228 pounds 2,072
*Figures to 1-1-96, offer-to-bid, assuming after-tax income re-invested. Returns would be higher if funds were placed in a PEP. Source:MicropalReuse content