‘Ethical investment’: rock-solid principles or shifting sands?14 October 2014
This weekend sees the start of the ethical investment industry’s annual effort to raise its profile with its previously branded National Ethical Investment Week this year renamed as the Good Money Week (19-25 October) campaign. According to the co-ordinators at the UK Social Investment Forum, the name change aims to make it ‘relevant and accessible to a much wider audience’.
However despite the hard work of this segment of the financial services industry, evidence suggests that ethical investment has failed to make a decisive breakthrough into the mainstream. According to figures from the Investment Management Association (IMA), funds under management for ethical funds were £9.7 billion at the end of August 2014 meaning their share of the industry’s £823 billion total funds under management was just 1.2%, the same percentage as this time last year.*
Jason Hollands, Managing Director at Tilney Bestinvest says: “Our sense is that there is a latent interest here that the industry has yet to really tap into. Field work undertaken for us some months ago revealed that two-thirds (63%) of UK adults polled indicated they would take exception to having their money invested in certain types of companies and only 21% said they were happy to go wherever the best returns were to be found."
The Tilney Bestinvest research found that among the traditional ethical issues, 35% of those polled didn’t want to invest in countries with poor human rights, 30% would consider excluding investments in tobacco, 27% in gambling companies, 15% were opposed to investing in arms manufacturers and 12% would exclude investment in alcoholic drinks companies. However, it also showed that as many people would exclude investment in banks (12%), an area many ethical funds invest in.**
Hollands commented: “While at a headline level ethical investing appeals to some investors, when you look beneath the bonnet it is far from straightforward as it is catch-all for a wide range of strategies, trying to cater for a smorgasbord of different concerns and audiences, with policies varying from fund to fund.”
Tilney Bestinvest points to the emotive issue of animal testing which some ethical investors are resolutely opposed to in any shape or form, while others support it in the cause of medical research to alleviate human suffering. Kames Ethical Equity and Kames Ethical Corporate Bond, avoid companies involved in any form of animal testing (and also avoid meat, dairy and fishing), while many other ethical funds allow animal testing stocks where it is for medical research purposes. Indeed, the UK’s largest pharmaceutical firms, AstraZeneca and GlaxoSmithKline, are top 10 holdings in a number of ethical funds.
Hollands explained, “The reality is that most businesses do not neatly fit into black or white definition of good or bad. So ethical or responsible investing is all about navigating through the shades of grey and identifying companies that are ‘best of breed’ for corporate responsibility and then ‘engaging’ with investee companies on social, environmental and corporate governance issues. In the main this means the largest holdings of most ethical funds are littered with well recognised big companies, including banks, insurers, utilities and healthcare companies. That can leave those expecting to see their cash funnelled into social impact projects and renewable energy firms a little deflated.”
Hollands concluded by highlighting that some funds have the flexibility to review and change policies over time, in light of the evolution in the concerns of the public and reflecting debate, either through use of committees or by surveying investors. While there is much to merit in the adaptable approach, especially where these committees are independent of the investment teams, he warned that investors who may have very firm ‘red line’ positions on a particular issue need to recognise that “today’s policies may not be set in stone for all-time” and therefore investors need to keep abreast of such developments. "Keeping a beady eye on investment performance is a vital for investors in active funds", warns Hollands, "but when it comes to ethical investments, investors also need to follow policy developments closely."
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** An independent online survey of 2,078 UK adults aged 18+ was conducted by Research Plus Ltd, between 14th – 18th November 2013
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Current or past yield figures provided should not be considered a reliable indicator of future performance. This article is not advice to invest or to use our services.
Due to their nature, specialist funds can be subject to specific sector risks. Investors should ensure they read all relevant information in order to understand the nature of such investments and the specific risks involved. Please note that ethical funds may, by definition, have a limited investment universe; this may affect performance.
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About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
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Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.