Rathbone Greenbank Investments
Why Ethical Investment?
One of the most exciting developments in the financial world in recent years has been the growth of ethical investment (also called sustainable investment, socially responsible investment or SRI).
Individual investors have played a vital role in supporting the growth of the ethical investment movement. The UK's first ethical unit trust was launched in 1984 in the face of considerable scepticism by mainstream investors. However, with the support of individual investors, as well as some larger investors such as church groups and some enlightened charities, the ethical investment market has grown and defied its sceptics. Now, nearly £10bn is invested in ethical retail funds* by individuals and organisations wanting their investments to reflect their values.
Indeed, today, ethical investment has become increasingly accepted, as mainstream investors now recognise that environmental and social risks can impact on investment returns. Major initiatives, such as the Carbon Disclosure Project (CDP) and UN Principles for Responsible Investment (UN PRI), have attracted the support of large numbers of investors of all types.
Ethical investment has become further established through changes to government regulation. Charities and Pension Funds are now required to state “Where material investments are held, the investment policy and objectives, including the extent to which social, ethical or environmental considerations are taken into account”. Senior lawyers have argued that ethical investment is not only permissible under fiduciary responsibility but may also be an essential part of it.
As a result many large organisations have started to take social and environmental issues into account in the management of their investments. They include pension funds such as the Environment Agency Pension Fund and the Universities Superannuation Scheme, as well as many charities and organisations such as WWF, Friends of the Earth, Amnesty International, Oxfam, the RSPB and the Soil Association. Total funds invested under broader definitions of socially responsible investment (SRI) are now over £900bn in the UK.**
As ethical investment has grown it has become more sophisticated, developing new approaches such as engagement, thematic investment and integration analysis to complement traditional screening.
While many investors welcome the opportunity to invest ethically, they still demand good financial performance. Here the evidence is encouraging. Studies show that investing ethically can contribute to good financial performance over the longer term. For example, a study of SRI funds for Oxford university found that on average 39 UK equity SRI funds bettered the market and their 319 mainstream UK equity fund peers over one, three, five and seven years and matched both over ten years (to end 2007). ***
* Source ERIS. As of 31 Dec 2009 there was approximately £9.5 billion invested in the UK's green and ethical retail funds.
** Eurosif : The European SRI Study 2010. This estimates SRI AuM in the UK as £938.9 billion (as of 31 December 2009).