Most ‘ethical’ investments are mainstream

Most ethical funds invest very little in companies that are serious about tackling climate change, according to a new survey.

The Holden & Partners study, (Guide to Climate Change Investment), looking at the Top 10 holdings of ethical and socially responsibly investment (SRI) funds shows very few invest much in tackling climate change. As a result, investors in SRI and ethical funds, who were hoping to support the low-carbon economy, may find that they are predominantly buying into multinationals more associated with being part of the problem rather than part of the solution.

‘The environment should be the key ethical issue for all investors to consider’, said Mark Hoskin, specialist ethical and environmental Independent Financial Adviser at Holden & Partners.

Speaking ahead of National Ethical Investment Week, Hoskin added: ‘Any fund considering itself ‘ethical’ should ensure it is investing in companies providing solutions to environmental problems.’

The study found that most SRI and ethical funds' top ten holdings are surprisingly mainstream, with names like Vodafone and Royal Bank of Scotland occurring time and again. However, many also have holdings in large mining corporations as well as BP, Shell, Total and other oil majors.

“The environment is the theme of the 21st century.

By contrast, there are a number of 'pure-play' environmental investment vehicles available with 100% exposure to environmental solutions providers. These include: listed funds investing in worldwide listed stocks, such as Impax Environmental Markets Trust and Blackrock New Energy Investment Trust; AIM listed funds investing in private companies such as Low Carbon Accelerator and Ludgate Environmental Fund; and private funds available to retail investors such as Triodos Renewable Energy Fund which has 100% of its holdings in projects and companies.

‘The environment is the theme of the 21st century. If ethical funds aren't investing in the solutions to these problems, how can they claim to be ethical? The two questions that should be asked are these: are they providing investors with what they were hoping for - investment in companies which are improving the environment and making a positive contribution to society? And are they benefiting from arguably the most exciting investment opportunity of the decade, investment in clean-tech or environmental pure-plays? Given this opportunity, environmental investment is unlikely to remain a niche for long but will evolve to become a key theme for all funds’, said Hoskin.

Socially responsible investing is already a recognised and established sector, with an estimated £10bn invested in retail funds and £80bn in occupational pension schemes. However, an increased interest in the environment coupled with the recognition that climate change presents a compelling business opportunity for those who can mitigate it means that SRI funds must be explicit in addressing climate change concerns as an ethical issue if they are to remain competitive.

Hoskin added: ‘Amidst the turbulence of the credit crunch it is tempting to think there is nowhere to put one's money; property is about to crash, the stock market has crashed, bonds look risky and even the building society seems unsafe. But the growth story in environmental investment, combined with rising oil prices, concerns about energy demand growth and security, legislation and global climate change concerns make environment investment a very attractive option.’