The past decade has seen a big increase in ethical investing, although in overall terms, it is still a niche market. In the middle of Good Money Week, which aims to let investors know about the range of ethical and sustainable financial options, we take a brief look at some of the statistics and issues.
Monies held in ethical funds have risen from £4.5bn in 2008 to £16.7bn today, according to Hargreaves Lansdown. The rate of growth can be seen by the fact that over £600m from individual investors was invested in ethical funds in the first half of 2018, according to the Investment Association. This compares with 2008, when just £180m was invested ethically over the whole year.
Another research study by Triodos Bank believes an increased focus on sustainability within the UK's investment community will see the national socially responsible investing (SRI) market reach £48bn by 2027. The trend towards sustainable investment is strongest amongst millennials and Gen-Z respondents to the survey. However, the study anticipates that over-55s will continue to be the demographic that contributes the most to the UK’s ethical investment market in every year until 2027.
This all sounds impressive, but another recent research study by UBS shows that UK investors currently are still among the least likely to invest sustainably, with only 20% holding sustainable investments in their portfolio. This is half the global average.
Part of this is due to confusion over what represents ethical investing, as well as the terminology. For example, we have SRI, ESG and VBI as well as ethical and sustainable investing.
Further confusion stems from what actually represents an ethical fund. Ethical funds were traditionally based on negative screening and ranged from those that fully excluded mining stocks to those that simply invested in the least environmentally harmful. Others exclude cigarette, alcohol and gambling companies alongside weapons manufacturers. The Triodos Bank study showed there were also concerns amongst investors about the ‘greenwashing’ of funds.
For many, however, the main issue has been scepticism about the ability of ethical funds to deliver a decent return. Making a profit and ‘doing good’ were seen as separate and contradictory objectives. The assumption was that corporate social responsibility (CSR) came at a cost - a less competitive business that resulted in lower investor returns. An article in New Model Adviser earlier this year should dispel some of those concerns, showing that some ethical investments are consistently outperforming their more traditional counterparts.
This demonstrates that is becoming increasingly possible to invest in a way that does some good and gives you a decent return.
So if you would like to review your investment portfolio in the midst of Good Money Week, contact Kellands today.