20th September 2010
Seb Beloe chuckles as he recalls the scepticism that greeted the launch of the first ethical fund in the UK, way back in 1984. Friends Provident named it the Stewardship Fund but City cynics at the time dubbed it the ‘Brazil Fund' to reflect their view that you had to be nuts to invest in it.
Beloe, head of Sustainable and Responsible Investment (SRI) research at Henderson, is keen to stress just how much has changed since the launch of the ‘Brazil Fund', with SRI, an umbrella term encompassing the now very wide range of ethical investment channels, having grown into a multibillion pound industry.
For the UK alone, despite the financial crisis, interest in SRI remains encouraging.
The latest quarterly fund of funds survey by the Investment Management Association (IMA) shows net retail sales of SRI funds totalled £98 million in the second quarter of 2010, well above the average of the past four quarters and the highest since the fourth quarter of 2007. For the first half of 2010 overall, SRI funds had £135 million in total net retail sales.
More broadly, SRI funds under management totalled £5.6 billion at the end of the second quarter, down 5% on the previous quarter but 22% up on the second quarter of last year. The proportion of gross retail sales of ethical funds, meanwhile, came in at 0.9%, in line with that of the past seven years.
Beloe says of the IMA figures: "It is impressive to see investments in SRI products bounce back so vigorously after the dip – which all funds experienced – in 2009.The figures clearly underline the increasing popularity of SRI as an investment strategy among a growing community of investors."
The success of SRI investment funds since their humble beginnings are in part attributable to legislative pressures in fields like environment and health and safety – two of the key areas of interest for Henderson SRI fund managers.
But Beloe now sees a period of a few years over which legislative pressures will play a lesser role: "I think the pace will slacken somewhat on this front, not be quite so gung-ho, as countries around the world go through the austerity phase and governments try to reduce cost pressures and help companies remain competitive."
In assessing legislative pressures and attendant investment opportunities, regional variations have to be taken into account. EU car emission legislation, for instance, is now in its fifth phase and while European standards in general have been much more demanding than in the US and China these countries are now catching up fast.
"China has been particularly impressive in this regard," says Beloe, adding: "in some categories of emissions standards the Chinese are stricter than the Americans.
"Typical of China to have achieved so much in the space of five years – it's quite extraordinary."
But while legislative pressures on industry may ease over the next few years, Beloe sees a continuing racheting up of ethical demands on suppliers to the big companies.
"To supply to Wal Mart, for instance, you have to comply with all sorts of environmental and social requirements so to a certain extent market drivers are becoming more important than legislative measures."