More clients putting focus on responsible investment
Ethical fund chief tells of finding stocks set for long-term success
INVESTING is largely done for a single reason: making money. But, as the value of ethical investment funds passes £15 billion in the UK, it is clear that more investors are looking to ensure any returns they receive come from businesses with a clear policy on environmental and social responsibility practices.
As head of responsible investment at Standard Life Investments (SLI), Amanda Young leads a team of analysts focusing on the sustainability issues at investee companies in the group’s three ethical funds, which have a cumulative value of £1bn.
She says that as more people become conscious of the way in which the world around them is managed, more investors are seeking to back companies that are seen to be doing the right thing.
“What we find with these funds is that it is quite sticky money,” she says. “People like the ethos of these funds, they like the concept of the ethics and as long as it is performing the money trickles in.”
The group’s UK Ethical Fund launched in 1998, its Ethical Corporate Bond fund launched in 2005, and European Ethical Equity Fund launched in 2007.
“Our flagship UK Ethical Fund has performed in line with markets over a long period of time,” says Ms Young, who has been with SLI for three years, having spent most of her career in ethical investing.
“Last year we had a stellar year, because we had no mining, or oil and gas. This year that’s playing against us so it depends what you’re benchmarking yourself against. But generally we are a stock picking house, so we choose stocks that we believe have the potential to outperform and deliver in the long-term.” Amanda Young was born in South Africa and moved to England at 18, where she began her career as an economic researcher. She moved from “smelly London to gorgeous Edinburgh” three years ago to take on the role of head of responsible investment at Standard Life Investments. This portfolio includes three funds with a combined value of more than £1 billion.
To that end, Ms Young says fund managers are not biased towards certain industries, but of course, not only must these managers ensure investments are making a return, but that those investments adhere to a strict set of guidelines.
“There is a large exclusion in ethical funds because people don’t want to invest in tobacco, gambling or armaments. And in the market as a whole there is definitely a trend towards companies needing to justify their existence beyond their bottom line, to society, to stakeholders,” says Ms Young.
“You can’t now say ‘we returned x to shareholders therefore we’re great’. Because customers will not put up with that if they are polluting the environment, doing something harmful, treating their employees wrongly, abusing human rights in some other way down their supply chain or being involved in corrupt business practices.”
To ensure that SLI’s ethics are in alignment with their investors’, each year the group sends out a survey to investors to ascertain their views on the ethical policy.
“That means we can ensure the ethical policy remains in line with investors’ views,” says Ms Young. “And over the last decade we’ve seen a shift from a negative ‘thou shalt not invest in…’ type approach to an ‘I want to invest my money in something that does good, serves people well, helps mitigate environmental issues’.”
In addition, SLI is a signatory to the United Nations supported Principles for Responsible Investment (PRI), which has received endorsement from over 1,200 global investors since its launch in 2006.
The PRI provides a framework for investors to give consideration to environmental, social and governance issues.
“That was the start of the integration of environmental and social governance factors for mainstream investment process,” she says.
Ms Young – South African by birth – began her career doing economic research on the trading floor before undertaking ethical research for the Church of England.
“I realised actually this was something that really aligned with my ethos and values as well as being part of a financial system that I enjoyed being part of,” she says.
Looking ahead, and Ms Young says the world is facing a number of major challenges which will impact businesses who attempt to follow ethical principles.
“There is some risk that Trump does something radical so that climate change is forgotten about in the US, but there is still a massive move from the environment agency in the US towards lower carbon energy solutions, and that makes financial sense,” she says.
A number of moves are in play however, to stall the impending environmental catastrophe. Ms Young says the UN sustainable development bill, introduced last year, acts as a “very good proxy for companies to start thinking about the value they provide to society beyond the bottom line”.
She adds: “Well-behaved multinationals who have strategically thought about where they want to be in the future have the ability to deliver social and environmental returns as well as financial ones.”
And multinationals are under greater scrutiny than ever in a world where news travels the world in the time it takes to type a tweet.
“That rise in stakeholder awareness in corporate behaviour is growing significantly,” she says. “The access to information, the reliance on technology, the constant hunger for news, that’s feeding a lot of what the millennium generation are thinking.”
She says younger people are more likely to invest in ethical funds, but it is by no means confined to the under 40s, so whoever the investor, they are looking at more than just money.