News Analysis: Ethical investing open for business

Ethical investing is due a growth spurt. The scene is set for an emergence of new money into the sector, as governments, fund managers and investors take a greater interest.

The international community, led by US president Barack Obama, has promised billions of pounds for environmental and ethical initiatives, giving the green light to a renewed push for investment opportunities in this area.

A report by The Co-operative Investments last month showed 18 per cent more people intended to invest ethically this year.

But many of the socially responsible or ethical investment areas are in their infancy, with a concern over their track records in troubled times.

The Co-operative research alludes to the credit crunch being a catalyst of a renewed fervour for ethical investing, as investors shun mainstream investments that have tanked so spectacularly over the past 18 months.

The company's ethical fund – the Sustainable Leaders trust – has seen unit growth of 16 per cent throughout last year and continuing into this year.

According to the IMA's latest figures, retail inflows into ethical funds have outpaced outflows for each of the 14 months since February 2008, despite the credit crunch.

Zack Hosking, head of investments at The Co-operative, says: "The financial crisis appears to have encouraged investors to think not only about how much money they make, but importantly, also about how it is made.

"The focus of ethical funds to seek out stocks with responsible and sustainable business models has made them an increasingly attractive proposition to investors."

However, there are some who are sceptical of the rise in performance of socially responsible funds, arguing the credit crunch has exacerbated both the dangers and opportunities for investors.

Paul Begley, senior researcher at AccountAbility, says a number of socially responsible start-up firms are close to going bust as the capital supporting their businesses dries up.

Further, many of the renewable-energy businesses, including wind farms and solar-panel makers, have yet to show they are capable of meeting large-scale energy demands. Sustainable technologies such as the electric car have also come under criticism for carbon emissions during their production.

Mr Begley argues a number of investors are turning to the 'vice' investments of armaments, tobacco, oil and mining, rather than the riskier ethical options.

Meera Patel, senior analyst at Hargreaves Lansdown, says ethical investing is not proving to be a major sector for the firm, with only the "odd client" taking up the option to invest.

But she agrees with The Co-operative that many ethical funds have held up well in the current economic crisis.