The truth about ethical investments

Monday, 05 February 2007 12:00

Ethical investments are not the preserve of tree-hugging hippies turned investment bankers – but a serious way to make money and keep a clear conscience.

That is the conclusion of industry experts, some 20 years after the first funds were launched.

“Over 20 years ago when the first ethical funds were being launched onto the UK marketplace, many people thought their strict ethical screening process meant investors would have to sacrifice returns and take on more risk because of the funds’ natural bias towards small and medium sized companies,” said Ted Scott, manager of the Stewardship Income fund.

“Indeed, some investors went as far as to label the Stewardship funds the ‘Brazil’ funds because you would have to be ‘nuts’ to invest in them.”

But in the years since their launch, several things have changed people’s minds.

Firstly, ethical and environmental issues have soared up the agenda, from the 1980s “greed is good” culture to 150 million people demanding the world leaders act to “make poverty history” in 2005.

The second factor has been the continued over-performance of ethical funds.

Recent research from Deutsche Bank shows the ten per cent of FTSE 350 companies which score best on a range of governance and sustainable and responsible investments (GSRI) criteria outperformed the bottom ten per cent by more than 7.5 per cent a year, while Mr Scott’s Stewardship fund has made it onto the Principal White List of the best performing UK growth funds for the fifth year in a row.

And these two factors have seen money flow into ethical investments.

Last year research from research from Brewin Dolphin Securities showed three million British investors are looking at putting their money in ethical investments.

Figures from Datamonitor show across Europe investors have put more than a trillion euros (£671 billion) into ethical funds, with 71 per cent of this coming from the UK, as European ethical wealth management grew 36 per cent faster than the overall European equity markets between 2003 and the end of 2005.

“Public sentiment towards ethical investing is turning around as strong medium and long term performance numbers prove ethical funds can match and even beat their unconstrained competitors,” Mr Scott concluded.

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