Investment funds: Ethical does not equal environmental

Investors in ethical funds are being warned their environmental considerations may not be taken into account.

A study of the top ten sustainable & responsible investment (SRI), ethical and environmental funds reveals very few invest in companies that are taking direct action to tackle climate change.

Independent financial adviser Holden & Partners' Guide to Climate Change Investment reveals most SRI and ethical funds invest in mainstream firms such as Vodafone and Royal Bank of Scotland.

Furthermore, mining corporations and oil companies such as BP, Shell, Total and others are also featured.

Of the funds that made their holdings public, Holden & Partners found Henderson's Industries of the Future fund to be most environmental – with 51.1 per cent of its fund in environmental solutions providers.

At the other end of the scale, the L&G Ethical Funds portfolio invested less than one per cent in such environmental stocks.

Even some of the newer environmental and climate change funds, which did generally invest in firms working to counter climate change, invested in companies such as Porsche, Renault, Nestlé and Danone.

Peter Holden, partner at Holden & Partners said: "This report shows that the SRI and ethical funds have not kept pace with the public's appetite for environmental solutions. Many are investing in mainstream 'old economy' companies whose contribution to solving environmental problems is questionable.

"There are good environmental funds available though, the environmental economy is enjoying strong growth and is an investment opportunity."

However, he advised those looking to invest in ethical funds to seek independent financial advice as it is a complex area of investment.

The report predicts "the outlook for the environmental economy and the environmental investment sector remains highly attractive".

It found with an economic downturn forecast for 2008, funds may slow as investors become more risk averse.

"However, in the medium term the outlook for these funds remains strong. The long-term drivers of the environmental economy – climate change, population growth, growing waste and resource depletion – remain firmly intact."