National Ethical Investment Week – Spotlight on green and ethical investment

5th November 2010

According to the ethical investment consultant Eiris, around £9.5 billion is now invested in UK green and ethical retail funds, nearly a quadrupling from the £2.4 billion in 1999.

With research also showing that nearly half of people with savings and investments would "like to make money and make a difference," clearly the sector is well placed to continue its robust growth.

National Ethical Investment Week, which runs from 7-13 November, is a campaign backed by sector players. It is aimed at raising awareness of green and ethical investment and encouraging savers and investors to consider such solutions when it come making financial and investment decisions.

Penny Shepherd, chief executive of the UK Sustainable Investment and Finance Association, says the week is also "a great opportunity for the growing number of financial advisers advising on green and ethical investments to support their existing clients and attract new ones."

Making a difference

Shepherd adds: "Green and ethical investing is no longer just a minority concern. The increasing interest from clients, and potential clients, presents a real business opportunity for the adviser profession….understanding green and ethical investment is becoming more and more important for helping clients interested only in the financial risk and return of their investments as well as those that want to make a difference in the world too."

In its helpful guide to the industry, sponsored by Henderson Global Investors, NEIW explains that green and ethical investments aim to look at the wider impact of investing on society and the environment when seeking financial returns. The investments can also take into account social or environmental criteria in addition to financial criteria.

The terminology used to describe the sector can be a bit confusing but generally, terms such as ‘ethical investment'; ‘environmental investment'; ‘sustainable and responsible investment' and ‘socially responsible investment' essentially all refer to the same thing.

There is a variety of approaches used by portfolio and fund managers for green and ethical investment, with many funds combining these approaches to achieve best returns. These approaches include:

‘Positive screening' – investing using social and/ or environmental themes like health, education and climate change; or favouring companies that have a responsible approach to business practices, products or services.

‘Negative screening' – not investing in companies that do not meet the ethical criteria that the fund sets.

‘Engagement' – using the active influence of shareholders to support and encourage more responsible behaviour by businesses.

‘Integration' – including explicit consideration/ inclusion by asset managers of environmental, social and governance factors within traditional financial analysis.

Myths dispelled

The NEIW campaign is keen to dispel some of the "myths" that still surround the sector.

One is that financial performance is sacrificed with green and ethical investments. NEIW, however, points out that  90% of wealth managers responding to a Summer 2009 survey said that their green and ethical investing portfolios had performed the same as or better than their other portfolios.

Another myth is that green and ethical investing means a specific set of products, particularly those with negative screens.

NEIW explains though that green and ethical investing is an investment philosophy that combines environmental and social criteria with conventional investment criteria to meet both a client's financial objectives and any social or environmental objectives they may have.

"It is defined by use of this philosophy not by any one specific technique. Many modern green and ethical investments aim to help investors to make money and make a difference in society at the same time. "

Focus on profit

Mark Hoskin, of Holden & Partners, the financial planning adviser adds:  "Do not base your assumptions on green or climate change investing on ‘values'. Today it is about financial profit.

"Today environmental markets are seeing growth of 20% to 30% per annum, driven largely by changes in government policy across the globe and the drive by companies to increase efficiencies in their business and reduce costs.

"Investors need to see environmental investing not as ‘green', but as a pure investment, based on supply and demand dynamics."

Much of the future success of sector will depend on public attitudes to green, responsible investing. So it is heartening to note that, according to NEIW, household spending on ethical goods and services has almost tripled in the past 10 years.

Overall the ethical market in the UK was worth £36 billion in 2008 compared to £13.5 billion in 1999.

Recent market performance has been encouraging too, with the Investment Management Association (IMA), saying net retail sales of ethical funds totalled £98 million in Quarter 2 2010 – is well above the average of the past four quarters and the highest net sales figure since Quarter 4 2007. Read the full Mindful Money report on the findings here.

Strong IFA interest

Meanwhile, a study by Eurosif, a pan-European association focused on Sustainable and Responsible Investment (SRI),  has found that sustainable investments make up approximately 11% of high net worth individuals' portfolios as of 31 December 2009. That amounts to an impressive growth rate of over 35% in the last two years for this cohort.

Not surprisingly, interest in green and ethical investment amongst IFAs is strong and growing with 2009 research from financial consultant NMG revealing that 87% of IFAs now advise on green and ethical investment, a significant increase compared to just 70% in 2008.

Andrew Strange, director of policy at the Association of Independent Financial Advisers (AIFA) says: "The recent financial crisis has only served to heighten consumer awareness of their finances and the long term impact of the choices they make.

"To meet this consumer demand IFAs provide high quality independent advice which often embraces green and ethical investment. "

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