Forty Shades of Green – Investing in Ethical Funds
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Seventy per cent of people in Great Britain consider their outlook and lifestyle to be green and ethical, and 49% of people with savings and investments would like to make a difference with their money, according to the UK sustainable investment and finance association (UKSIF) .
Interest and trust in ethical investments is growing. Independent ethical research specialist EIRiS reveals there is currently £ 7bn invested in ethical funds in the UK, compared to £ 1.5bn ten years ago.
How do ethical funds invest?
Ethical funds limit their investment strategy to those companies that match their ethical criteria. They do this in two ways.
Some funds use 'positive screening' to include companies that are strictly pro-environment. These include companies which manufacture environmental products, encourage biodiversity, or promote renewable energies.
Other ethical funds seek to exclude companies involved in various 'unethical' industrial sectors such as tobacco, alcohol, meat, nuclear power, defense, or intensive farming. Activities that can be avoided include deforestation, exploitation of workers, or animal testing.
The definition of what is ethical is sometimes problematic, however. The critics say that ethical funds are not transparent enough to convince investors that they are really 'green'.
Potential investors sometimes claim that the screening process limits the number of companies available to ethical fund managers, and therefore hampers their ability to maximize returns.
By avoiding investing in global banks, for instance, some ethical funds are said to have missed out on the recent rally in economic markets.
The energy issue
If we consider an ethical investment as a means of bringing about real progress in, for instance, developing renewable energies, we raise an important question.
It has been said that the oil giants, usually shunned by many ethical funds , invest more money in researching alternative energies than smaller 'boutique' companies specializing in wave energy or wind power – and that Texaco and BP therefore have a right to be included in our ethical publications as well.
Some funds which market themselves as ethical do invest in oil and gas, believing these to be essential to produce a competitive return for their investors. However, they claim to select those energy companies which have an environmental policy in place, and are making some gestures towards respecting the environment, insofar as that is possible in their industry. The phrase 'least worst' has been coined to describe the oil and gas companies concerned, when compared to others in their sector.
Investment policies, therefore, are far from black and white. Investors remain skeptical on the subject of how ethical so-called ethical investments are really, with 44% of UK investors claiming that the financial services industry needs to provide clear evidence of the green impacts of ethical investments. As a result, only 8% of UK investors currently hold an ethical investment or savings product, according to EIRiS.