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).
The UK's first ethical unit trust was launched in 1984 and to date many billions of funds* have been invested in UK ethical funds by individuals and organisations wanting their investments to reflect their personal values. Individual investors have played a vital role in supporting the growth of the ethical investment market.
Ethical investment has been given a further boost by government regulation. Recently, charities have been 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”, which builds on similar requirements for pension funds.
As a result many large organisations have started to take social and environmental issues into account in the management of their investments. They include several local authority pension funds such as Nottinghamshire and Strathclyde, the Universities Superannuation Scheme, and company pension funds such as Sainsbury's, John Lewis and The Body Shop, as well as many charities and organisations such as WWF, Friends of the Earth, Amnesty International, Oxfam, the RSPB and the Soil Association. Charity assets invested with some form of ethical screening now total some £17 billion*.
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, the Domini 400 Social Index in the United States is an ethically screened index that provides an alternative to the Standard& Poors (S&P) 500 Index. Over the ten years to the end of 2003, the Domini index outperformed the S&P by an average of 0.79% per year.**
* UK Social Investment Forum/EuroSIF: Socially Responsible Investment among European Institutional Investors, 2003 Report
** KLD Research & Analytics