In the past, ethical investment involved avoiding 'sin' stocks such as alcohol, gambling or armaments. This has evolved into fund managers who actively seek out opportunities in clean tech, energy security and water, among other socially responsible investments. These not only bring moral assurance but, according to new research, are earning very attractive returns.
The old perception was that ethics in finance hamstrung returns, but this is no longer the case: according to an Eiris survey, only 15% of consumers now believe ethical products are likely to perform worse than similar standard products. Similarly, Matt Christensen from the European Social Investment Forum has said that there is no reason to believe complying with environmental, social or governance benchmarks dilutes investor earnings. This is supported by a series of academic reports produced by the Mercer consultancy, which show that taking account of these issues produces positive effects on portfolio returns.
Green, social and ethical funds have grown considerably in number and size over the past few years. Growth has been maintained despite the credit crunch and some commentators point towards investors wishing to move towards a 'cleaner' financial product, after the dirty dealings of Madoff and others in the investment community. Another recent Eiris survey found that 44% of Brits said they now consider the ethical credentials of credit cards and other financial products. This is a significant increase from the 17% Datamonitor's Financial Services Consumer Insights survey reported only six months ago.
Consumers are dissatisfied with the traditional mechanisms of the financial community and are looking for another way to operate. Money managers have been criticized for paying only lip service to environmental investment, and need to take heed as consumer interest builds. Typical of this, a new site, www.yourethicalmoney.org, provides clear ratings of the ethical performance of a vast array of financial service providers, leaving nowhere for managers to hide.
With mounting consumer demand, government policy pressure and now attractive returns, ethical investment looks set to continue gaining popularity.