Ethical investment is becoming increasingly important in pension fund management due to a huge rise in public awareness and demand. More than 75% of UK adults believe that their pension scheme should operate an ethical policy (EIRIS and NOP Solutions).
Investors are worried about the world they live in - risks, congestion, climate changes, food scares. Companies that address these challenges are likely to be well managed, and therefore avoid known and future risks, thus reaping future rewards.
With this core understanding, the investment community has been searching for the mechanisms to measure good, ethical and environmental management performance and corresponding business indicators. The weight of evidence is quite strong and new pieces of research strengthen this link.
The money committed to UK ethical investment (unit and investment trusts) has doubled since 1996 and is currently in excess of two billion pounds, and at over 1 % of total in investment trusts (EIRIS in Green Features, Sep/Oct 98), this represents significant opportunities for growth.
Campaigning groups and others are also considerably more aware of the role of institutional investors and are increasingly targeting them. In effect, "green chips are fast becoming as significant as "blue chips (Lean, G 25/11 Green stocks beat the Footsie).
There is also mounting evidence to suggest that there is a link between good environmental performance and enhanced company profitability. Furthermore, "a good environmental record is increasingly seen as a sign of a well- managed company (Michael Meacher, Former Environment Minister). Companies can therefore not afford to ignore the issue of ethical and environmental investment.
Overall they perform very well against the normal market. This shows that being responsible, ethical businesses need not harm performance. The Methodist Church has outperformed the MSCI index since its launch. The managers of the fund believe their SRI policy aids performance, rather than hindering it.
Retail SRI and ethical funds have generally performed well against pension funds internationally. Among SRI indices, the Dominr 400 Index (US multicriteria ethical index) in operation for over 10 years, has shown good performance levels overall.
In UK NPI Social Index' and Dow Jones Sustainability Index' were launched approximately two years ago and have performed well, but it is perhaps too early to judge their success. A new addition, the FTSE4G00d Series will seek to continue this trend.
The academic studies to date, the majority from the U S have given average to positive findings regarding SRI.
Some ethical funds are:-
- Friends Provident (Friends Ivory and Sime at www.fis.com)
- Henderson Global Investors
- Jupiter Global Green (www.iu~iteronline.co.uk)
- Norwich Union (www.morlevfm.com)
The sort of areas they invest in are involved in renewable energy, telecoms & communications, pollution cleaning technologies; transport groups; Waste management and recycling companies.
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