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Some find it hard to accept oil producers can be seen as ethical because they also have ‘clean tech’ and are best in class

within its IMA sector, and has subsequently won numerous awards.” However, despite being generally supportive of ethical funds, Neil Mumford, Chartered Financial Planner with Milestone Wealth Management, warns that ethical funds – because of their stricter mandate – can often be more risky than they first appear. “The narrower constraints and mandate the manager is working within will automatically mean the client is moving up the risk scale. The question then becomes: is controlling risk more important than their ethical beliefs?” Andrew Neligan believes ethical principles

often struggle to hold firm when risk and performance enter into the equation. “Our experience is that most clients who highlight a socially responsible investment preference during fact-finding, decide an appropriate risk/return trade-off is more important.” How you adhere to ethical principles

applies very much to pension funds too. Many trade union and public sector pension schemes are specific with regards to what they are prepared to invest in. For instance

Ethical banking

a 20 per cent increase in operating profit for 2010/11. In addition, lending, which is exclusively to sustainable businesses, was up by 28 per cent to €2.1bn. Significantly, customer numbers increased by more than 43,000, to 285,000 – it may still be a relatively small market, but it is a growing one. According to Peter Blom, the bank’s CEO, maintaining a pattern of long-term growth in 2010, provides strong evidence that environmentally and socially responsible banking is a powerful answer to the financial crisis. “European governments are shifting their focus away from solving our biggest social and environmental problems in favour of pressing economic priorities. This means cost-cutting measures that affect sustainability policy and slow down the necessary shift to a low-carbon economy. “In their place, business and civil society are increasingly

POST LEHMANS, there is a belief that sustainable banking can provide a powerful crutch to the global banking industry. In the aftermath of the 2008 financial crisis, more and more individuals and businesses are choosing a sustainable home for their finances. At least this is the view of Bristol-based Triodos Bank, which backs up its positive claims with numbers. The bank has seen

44 August/September 2011

acting as the key players in sustainability. We are at the forefront of these efforts, and plan to accelerate our lending to such projects.” Triodos Bank only finances enterprises, which create social, environmental or cultural added value. Key sectors include organic food and farming, renewable energy, social housing and fair trade.

NHS pension funds will, unsurprisingly, insist on excluding tobacco companies. Shaun Lacey, Head of Wealth Management at Investec (Channel Islands), agrees that these pension funds have and will continue to push the concept of ethical/SRI investing to the fore, but there is a balancing act between principles and acceptable performance levels. “There are many UK pension funds that

will exclude highly profitable companies such as BAE Systems,” (which supplies arms to Saudi Arabia), he explains. “Their stance is totally understandable but at the same time they have a commitment to members to ensure good long-term returns, so it is a balance.” Choosing the right funds is also a

challenge for trustees, as Katie Gordon, Head of SRI at Cazenove Capital Management, explains. “As a trustee and a member of the Investment Committee of Durrell Wildlife Conservation Trust, we had an interesting experience while reviewing the ethical investment policy for the trust’s investments,” she says. “The role of the trustee is to ensure the mission of the charity is followed – in the

case of Durrell, that mission is to ‘save species from extinction’, therefore screening out tobacco and alcohol stocks served no particular purpose, while degradation of natural habitats and animal welfare issues did. The negative screen was therefore amended and a positive emphasis on funds providing solutions to sustainability issues such as climate change was included.” Gordon adds: “Tobacco stocks might

be an obvious no-go area for health charities or NHS pension funds but for trustees in other sectors this may not fit with the mission. Trustees, IFAs and investment advisers need to get up to speed with the expanded SRI options available.” It is clear that the growth of ethical funds

has created a degree of complication for individual investors, fund managers and trustees. However, now that the investor’s consciousness has been pricked, the only way for ethical investments is forward. n

DAVID BURROWS writes for Reuters and The Financial Times

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