CLEAN, GREEN MONEY MA­CHINES Peter Ranscombe looks at why so many of us are turn­ing to eth­i­cal in­vest­ments

Eth­i­cal in­vestors are in­creas­ingly fo­cused on en­sur­ing their cap­i­tal has a pos­i­tive im­pact on so­ci­ety and the en­vi­ron­ment, finds Peter Ranscombe

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It’s one of those pieces of mail that drops through our let­ter boxes with alarm­ing reg­u­lar­ity – the an­nual state­ment from our pen­sion provider. Page af­ter page giv­ing de­tails of the funds in which our hard-earned money has been in­vested over the past year and the way in which those col­lec­tions of stocks and shares have per­formed.

Most of us will cast a cur­sory glance over the up­date, shake our heads in be­wil­der­ment and then file it away in the ‘to do’ pile, only for it to be joined in what feels like only a few weeks’ time by the fol­low­ing year’s state­ment. Not all in­vestors are as slap-dash with their cash though.

Eth­i­cal in­vestors take a far keener in­ter­est in where their money is placed, whether it’s by their pen­sion provider or by their wealth man­ager. Yet even their at­ti­tudes are chang­ing.

In the past, eth­i­cal in­vestors were happy to sim­ply avoid buy­ing shares in com­pa­nies in­volved in to­bacco, gam­bling or ar­ma­ments. Oth­ers would shy away from oil and gas pro­duc­ers, min­ing com­pa­nies or per­haps drinks mak­ers if they didn’t fit in with their val­ues or be­liefs.

Now, a new breed of eth­i­cal in­vestor is on the rise – the im­pact in­vestor. Not con­tent with sim­ply avoid­ing cer­tain com­pa­nies or sec­tors – known as ‘neg­a­tive screen­ing’ – these in­vestors want to ‘pos­i­tively screen’ com­pa­nies to select busi­nesses that will have a worth­while im­pact.

‘What we’re see­ing now is a rise in peo­ple want­ing to know that the money they’re in­vest­ing is con­tribut­ing pos­i­tively to­wards the en­vi­ron­ment and so­ci­ety’, ex­plains Amanda Young, head of global en­vi­ron­men­tal, so­cial and gov­er­nance re­search at Aberdeen Stan­dard In­vest­ments (ASI). ‘Eth­i­cal in­vest­ment is still very im­por­tant – and some peo­ple have a very strong view that “I just want to avoid these things” – but what we’re find­ing with mil­len­ni­als and also with women is that they want to in­vest in some­thing that makes a pos­i­tive dif­fer­ence to the world.’

A sur­vey car­ried out by YouGov for ASI found that 24% of women like the idea that their in­vest­ment choices could make a pos­i­tive dif­fer­ence in the world, com­pared with only 20% of men. Only 9% of women were not in­ter­ested in where their money was in­vested.

ASI has run its UK Eth­i­cal Fund for the past twenty years to buy shares in com­pa­nies listed on stock mar­kets that it be­lieves will give both a fi­nan­cial re­turn on its in­vest­ments and which will also have a wider pos­i­tive im­pact. Each year the com­pany sur­veys the clients who have in­vested in its eth­i­cal funds to find out the top­ics in which they are most in­ter­ested.

‘De­for­esta­tion re­mains the num­ber one pri­or­ity for our eth­i­cal cus­tomers – there are so many rea­sons for that,’ says Young. ‘You want to pro­tect the world’s forests as species’ habi­tats for bio­di­ver­sity, but you also recog­nise that chop­ping forests down has an ef­fect on cli­mate change; forests also pro­vide liveli­hoods and homes for peo­ple.’

Young points to cli­mate change in its own right as an­other key con­cern for in­vestors, along with an­i­mal test­ing and ac­cess to health­care.

Sim­i­lar themes res­onate with the in­vest­ment com­mu­nity more broadly. ‘If peo­ple speak to their fi­nan­cial ad­vi­sors then they can talk about fac­tory farm­ing, women in ed­u­ca­tion, hous­ing, em­ploy­ment, health, or­ganic farm­ing,’ adds Char­lene Cranny, the cam­paigns di­rec­tor at the UK Sus­tain­able In­vest­ment & Fi­nance As­so­ci­a­tion (UKSIFA).

Cranny says that if clients aren’t aware of all the op­tions avail­able to them then their fi­nan­cial ad­vi­sor will talk them through the United Na­tions’ Sus­tain­able De­vel­op­ment Goals (SDGs), a set of 17 calls to ac­tion for gov­ern­ments cov­er­ing ar­eas such as end­ing poverty, reach­ing gen­der equal­ity and en­sur­ing clean wa­ter and san­i­ta­tion. The SDGs can then be used to help clients de­cide on their pri­or­i­ties for im­pact in­vest­ments.

The SDGs are also at the heart of ASI’s eth­i­cal in­vest­ment strat­egy and will be used for the Global Sus­tain­abil­ity Trust (GST). ‘This is an in­vest­ment trust that will al­low the per­son on the street ac­cess to pri­vate in­vest­ments that wouldn’t nor­mally be avail­able,’ ex­plains Young. ‘They tend to be the pre­serve of the ul­tra-wealthy or pen­sion funds – things like pri­vate eq­uity, real es­tate, in­fra­struc­ture, and debt.’

When it comes to find­ing ad­vice on im­pact in­vest­ing, Cranny points to the Eth­i­cal In­vest­ment As­so­ci­a­tion, which keeps a list of ad­vi­sors who spe­cialise in sus­tain­able and im­pact in­vest­ing. While more so­phis­ti­cated in­vestors with ac­cess to fi­nan­cial ad­vi­sors or wealth man­agers can ac­cess spe­cial­ist help in pick­ing their in­vest­ments, she’s quick to add that any­one can take part in im­pact in­vest­ing.

‘Not ev­ery­one is go­ing to use a fi­nan­cial ad­vi­sor, they’re not go­ing to have that much money to in­vest, but there are on­line plat­forms on which peo­ple can in­vest as lit­tle as £1 in eth­i­cal funds,’ she says. Cranny reels off a list of providers, in­clud­ing Abun­dance, Bar­clays Smart In­vestor, Ethex and Wealth­ify.

Pick­ing eth­i­cal in­vest­ment doesn’t mean com­pro­mis­ing on fi­nan­cial re­turns ei­ther. ‘We have run a UK eth­i­cal eq­uity fund for 20 years and over those 20 years that has out-per­formed the FTSE All-Share In­dex but has ex­cluded half the mar­ket­place,’ Young says.

The per­for­mance of ASI’s fund is re­peated through­out the sec­tor. On aver­age, eth­i­cal UK eq­uity growth funds have out­per­formed the sec­tor by 4% over the past five years, ac­cord­ing to fig­ures from con­sul­tancy firm 3D In­vest­ing.

‘We need to bust the myth that eth­i­cal in­vest­ment costs more be­cause it doesn’t, and the fig­ures are out there to prove that,’ Cranny adds. ‘If a com­pany cares about sus­tain­abil­ity and ef­fi­ciency then they tend to per­form bet­ter in the long run.

‘If you’re pay­ing a liv­ing wage then you’re un­likely to have high staff turnover. De­tails like that add up.’

Peo­ple want to know the money they’re in­vest­ing is con­tribut­ing pos­i­tively to the en­vi­ron­ment

Above: In­vest­ing eth­i­cally to help the en­vi­ron­ment is high on the agenda for many busi­nesses.

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