How you can do good in the world AND still make a decent return
MORE investors are looking to do good with their money but are unsure how to go about it. While 80 per cent of people surveyed by investment giant Schroders say they try to help the environment by recycling or reducing their household waste, just 34 per cent have considered investing as a way to contribute to a more sustainable society.
But whether it is investing in a fund that backs companies doing good in the world or simply choosing a bank account offering debit cards made from sustainably sourced plastic, ethics and finance do not have to be mutually exclusive.
Indeed, nearly three-quarters of people surveyed by Triodos Bank believe businesses have the power to create positive social and environmental change.
Bevis Watts, managing director of Triodos Bank UK, says: ‘Investors increasingly recognise the power of money as a tool for change. They know they can exert a positive influence on society by channelling their investments into things that benefit not only themselves but the world around them.’
Yet a majority of investors say they would not know how to find out about ethical investment opportunities. One in seven people are unsure what an ethical fund does.
Good Money Week runs from today to Saturday. It is sponsored by providers including Co-op Bank and Liontrust. The aim is to raise awareness about the ethical options available to savers and investors.
A number of investment funds aim to generate returns by backing businesses involved in renewable energy. But such investment options have long battled the stigma that prioritising ethical and sustainable considerations comes at the detriment of financial returns.
Ethical funds have strict criteria in place that often rule out investments in businesses operating in controversial sectors such as tobacco or fossil fuels. When shares in these companies thrive, it can leave ethical funds lagging behind.
Yet investors are increasingly seeking out fund managers who prioritise sustainable businesses. More than half of UK investors have increased the amount they invest in sustainable funds over the past five years.
Meanwhile, one in five investors looks for funds that actively avoid investments in companies involved in arms, tobacco and alcohol. Jessica Ground, global head of stew- ardship at Schroders, says: ‘How companies make money is just as important as how much money they make. While profitability remains the central investment consideration, interest in sustainability is on the rise. More investors are looking for companies that embrace social and environmental change.’
Camilla Ritchie manages the Seven Investment Management Sustainable Balance fund, which has generated a return of five per cent over the past year. The fund invests in assets including wind farms and social housing. She thinks avoiding companies involved in controversial areas of business can help boost investor returns. Ritchie says: ‘It is reasonable to think that a firm producing high levels of emission may be exposed to future legislation, such as a carbon tax.’
Data from Moneyfacts shows that on average, ethical funds have outperformed non-ethical ones.
The average ethical fund has returned 10 per cent over the past year, compared with 9.3 per cent from the typical non-ethical fund. Over five years the returns are 67 per cent and 58 per cent respectively. Only over 10 years have nonethical funds outperformed. Despite this strong relative performance, just 1.2 per cent of all investors’ money is in ethical funds.
Investor appetite for ethical options is undoubtedly growing. The amount invested in ethical funds has climbed to £14.4billion from £10.1billion a year ago. There are now 196 sustainable and ethical funds available to investors.
One of the top-performing ethical funds is EdenTree Amity European fund, which has returned 26 per cent over the past year. The fund backs sustainable businesses across Europe that make a positive contribution to society. Investments include French telecoms company Orange and German pharmaceutical firm Bayer.