GREEN IS GOOD
How you CAN make healthy profits as an ethical investor
THEY are words unlikely to fall easily from the lips of Gordon Gekko types: ‘Green is good.’ But with the climate change conference, COP21, starting in Paris tomorrow – where world leaders will look to reduce global warming while protecting economic growth – supporters of ethical investments believe investors can profit from adding these funds to their portfolios.
The best performing investment funds that avoid the bad guys (such as polluters) while favouring the good ones (such as those giving up on fossil fuels) have almost all beaten the FTSE All-Share Index over the past one, three and five years.
These outperformers include Alliance Trust Sustainable Future UK Growth, Equity Impax Environmental Markets, Premier ConBrio Best Income and Quilter Cheviot Climate Assets. John Ditchfield, partner at Castlefield, an ethical financial adviser, says: ‘There is a clear link between sustainability and business success and ethical funds are best placed to spot emerging opportunities in the green economy.’
But he warns those seeking out ethical funds to look beyond ethical sounding names as some funds are not as green as they seem.
For example, Aberdeen Ethical World has a significant investment in a shale oil extractor, while Prudential Socially Responsible has holdings in Shell and mining company Rio Tinto.
Juliet Schooling-Latter, of fund broker Chelsea Financial Services, says: ‘A number of funds actively screen out companies that don’t adequately address key climate change issues. They include Edentree Amity UK, Rathbone Ethical Bond and Standard Life Investments UK Ethical.’
Lisa Stanley, joint founder of good- with-money.com, a new comparison website specialising in ethical money deals, says parents looking for an ethical Junior Isa will struggle to find one.
She says: ‘People often have more ethical concerns when they have children. But it’s hard to find an ethical equity Jisa. For example, even though The Children’s Mutual’s Jisa claims it avoids companies with “significant negative externalities”, its portfolio includes tobacco company BAT and drinks group Diageo.’
Justin Modray, founder of Candid Financial Advice, says there is ‘an argument of sorts’ that ethical companies will prosper long term by doing the right thing. But he argues that ethical fund performance is more affected by the prevailing sentiment towards sectors they invest in.
He says: ‘Most ethical funds avoid oil companies, which has been beneficial from an investment return point of view over the past couple of years as oil stocks have floundered. But if the oil price shoots back up I suspect we’ll see ethical fund per- formance lag that of conventional investment funds.’
Investors wanting to apply an ethical litmus test to their finances – including investments and pensions, banking, insurance and energy – can visit good-with-money. They can fill in an online form and an expert will assess whether a pension, for example, is heavily invested in oil. It will also suggest alternatives.
Natasha Woodward, a 39-year-old vicar from Kingsbury, North London, invests in a stocks and shares Isa with ethical bank Triodos.
She says: ‘Being ethical as an investor means more to me than making money. But I have not had to sacrifice investment returns as my Isa has performed well – better than the overall UK market. I don’t want to make money out of other people’s suffering so it really matters to me where my money is invested.’