Ethical investment: Just for green investors?
Ethical investments are often seen as not treating people's cash as well as their morals.
While investors are often keen to do the right thing - when left with a choice between high returns and high morals, cash is often king.
Traditionally ethical, or socially responsible, investments have had a poor reputation - being small and unpredictable. The sector also had the reputation for being only attracting the hippy and sandal investor.
However, things are now changing and ethical investments are becoming dinner party investments and a mainstream choice.
A new generation of ethical funds have come onto the markets - taking advantage of growth in areas such as green technologies and water provision while avoiding ethically dubious sectors.
"Ethical investment is absolutely as good as traditional investments," says Nick McBreen, an independent financial advisor at Worldwide Financial Planning.
"Historical volumes were small [with ethical investments] leading to returns being patchy and extremely volatile. Now the sector is more confident."
The growth of environmental issues into the mainstream - means the investment world has followed suit.
Big names in the ethical investment sector now include Jupiter, Aegon, Axa, Norwich Union and Henderson among many others and as green-focused companies have on the whole become more profitable, and earnings streams more predictable, with long-term contracts being struck for services such as recycling.
Emma Howard Boyd, head of socially responsible investment and governance at Jupiter Asset Management, says: "While recognising that the recent downturn in market sentiment has created some headwinds for investors in general, we believe that the long-term fundamentals behind green investment remain very promising."
She explains investing ethically is both about helping to mitigate the risks posed by climate change thorough investing in companies helping to tackle its causes, and generating consistent long-term investment performance.
"Now that environmental issues have entered the social and political mainstream, we would argue that the momentum behind green investment looks unstoppable."
At a recent reception for national ethical investment week, pensions minister Mike O'Brien explained how ethical investment had grown.
"Twenty years ago, few knew where to find ethical products or socially responsible savings accounts.
"Today, you can't walk down a supermarket aisle without seeing energy efficient light-bulbs or fairtrade coffee. Because today, consumers are increasingly aware of the impact their decisions make on the world."
In fact of quarter of people a quarter of those eligible for the forthcoming Personal Accounts pensions said they were interested in ethical investment options, often regardless of return.
Ethical investments take one of three strategies: screening, preference or engagement.
Funds that screen, cut out avoid investing in firms that are involved in activities such as pollution, the arms trade and animal testing, while aiming to include firms that make positive contributions.
Those taking a preference strategy may invest in areas like oil and gas, but will pick firms that have the best record for the environment - which is becoming a more common strategy as the amount of cash running into SRI grows and the firms that can fit the strictest definitions remain limited.
Finally those on an engagement strategy - other larger ethical pension funds - will try to encourage firms they invest in to change their ways.
With such diverse definitions, this is why ethical investment funds sometimes can surprise investors in who they invest in.
Mark Hoskin, at specialist ethical and environmental Independent Financial Adviser at Holden & Partners, however, its urging investors to look for the growth from 'pure-play' environmental investment vehicles available with 100 per cent exposure to environmental solutions providers.
"Amidst the turbulence of the credit crunch it is tempting to think there is nowhere to put one's money; property is about to crash, the stock market has crashed, bonds look risky and even the building society seems unsafe," he says.
"But the growth story in environmental investment, combined with rising oil prices, concerns about energy demand growth and security, legislation and global climate change concerns make environment investment a very attractive option."
It seems growth is now the key theme for ethical investment - so the sandals can be put away.
Daniel Barnes
Comments
Newsletter sign up