I sit down to write this article on the opening day of National Ethical Investment Week, and those of you who have suffered my scribblings for any length of time will know that ethical and environmental investing is my “pet subject”. In fact, my very first article for this illustrious periodical was on that subject, more than ten years ago (where did that time go?). At that time, ethical funds under management amounted to a little under £2bn. At the end of last year, this figure had increased to more than £10bn and it continues to climb, with, according to the latest figures, £98mn being invested in the second quarter (ISA Season) of 2010, and £208.4mn up to the end of September.

In case any of you have missed my previous items explaining the concept, there are 4 basic principles of Socially Responsible Investing, which are:

Positive Screening – the use of social and/or environmental themes, such as health, education, organics, and climate change and to favour companies that have a responsible approach to business practices.
Negative Screening– avoiding companies that do not meet the specific ethical criteria that the fund selects, such as: animal testing, arms production and those with a history of bad employment practices or pollution.
Engagement – using the influence of the funds, to encourage more responsible behaviour by the companies invested in.
Integration – the inclusion by fund managers of environmental, social and governance factors as well as the traditional aspects of financial analysis that they would consider, when selecting a company in which to invest.

The wide range of funds that are available now may use any combination of the above criteria, and are much better suited to matching the individual attitudes of investors than in the early days. Strict adherence to negative criteria was often considered too restrictive for many investors, and when the concept was first embodied in an investment fund, there was no engagement or integration, and no thoughts of the ‘thematic’ funds that now exist, promoting such themes as renewable energy, clean and sustainable water technology and climate change issues.

Two major factors were often cited as reasons for not using ethical funds: firstly that they tended to invest in smaller companies, often more volatile, and secondly that they have sacrificed financial performance. Nowadays, the range of funds is such that more ‘large capital’ companies can be included, and more asset classes – such as corporate bonds – have their own funds. Performance varies, just as with any investment funds, but in a recent survey, 90% of wealth managers said that their green and ethical portfolios performed as well or better than their conventional portfolios. Speaking of surveys, one conducted for last year’s NEIW showed that 49% of all those asked, who had savings and investments, would like to ‘make a difference’ as well as just make money. You don’t have to change completely overnight, but maybe you might like to ‘dip a toe’ into the Socially Responsible Investment arena, to help do a little good with your money, or a little less harm maybe. An ethical health-check is almost always free, and may be very interesting.

Well, that’s me finished for another issue. See you in January, have a Happy Christmas, and a healthy and peaceful New Year.

David Foot
david.foot@btinternet.com