A recent survey found that 60% of all investors wanted to avoid arms manufacturing, tobacco and, gambling.
So that is the ‘aspiration’, but reality suggests that very few of those investors have actually acted on this desire. Ethical funds account for a tiny 1.3% of Investment Association funds. So if there is such a desire to ‘avoid’ why is the proportion of people actually investing and demanding so small?
There are I believe a number of reasons. The first and perhaps most important, is to establish what your idea of ‘green or ethical’ actually is? Even in my question, the spread of options encompassing ‘green’ and or ‘ethical’ is broad.
Is ‘green’ a fund that avoids certain areas of investment in order to control carbon footprints? Is ‘green’ a fund that ONLY invests in areas that are actively addressing environmental issues, and then within that, what is encompassed and how do you measure it?
Many funds use the United Nations’ Principles for Responsible Investment for guidance, although these are mainly concerned with good governance of business rather than actively fighting climate change or social problems.
Does a Company’s perception of good governance align with yours?
Everyone has their own values and it’s easy to become overwhelmed when trying to pick an investment that matches yours. Critics of ethical investing often claim that the industry’s inability to agree on values means it will never become the norm.
However, things are beginning to change. The European Commission is developing a set of rules for environmentally-sustainable funds, which they plan to roll out between 2019 and 2022.
From October next year, UK pension schemes will have to disclose whether they take environmental, social or governance factors into account. I would contest that it is perhaps this last point that will perhaps have the most long-lasting reach. Assuming (as the investment take-up seems to suggest) that taking an ‘active’ stance and selecting a fund or funds based purely on a desire to invest ethically or in a ‘green’ fashion is more of an aspiration for most people rather than a ‘requirement’.
There is I would contest a far stronger likelihood of there being a greater basis of selection based around whether a fund manager actually takes into account such factors than anything previously. However, only time will tell!
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.
• Source Boring Money
Neil Dainton Dip PFS