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
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.