Focus: SRI: F&C: Speaking up for corporate governance and sustainability

This fund broke new ground, not only by avoiding the so-called ‘sin stocks’ that church funds had long shunned - alcohol, tobacco, pornography and defence – but also by introducing a new set of social and environmental criteria, such as human rights abuses, discrimination, pollution and deforestation.

Twenty-five years ago, the number of consumers speaking out against unethical and environmentally unsound practices was small and those who invested in this way even smaller.

Today, corporate responsibility, sustainable development and ethical consumerism dominate corporate planning agendas. Investors are playing a growing part in this trend, as companies and financial analysts recognise the impact ethics and sustainability can have on generating sustainable profits.

What started out in 1984 as a quixotic experiment has now turned into a big business, as investors not only intensify their scrutiny of corporate practice, but step forward to exercise their voice and shape corporate behaviour.

Amid the crisis that has struck the asset management industry, the IMA 2008 Asset Management Survey concluded that, despite ethical funds accounting for just over 1 per cent of total funds under management, growth over the years has in fact been relatively strong. Since IMA records began in 1992, ethical funds have grown by an annual average of over 19 per cent, despite slowing somewhat in 2003-08 to a still industry-beating 9 per cent annual growth rate.

According to the IMA, ethical funds under management as at Q2 2009 stood at £4.5bn, up from £4.1bn in Q1 2009, with 53 funds on offer. Compare this figure to Q2 2004 - £3.1m – or at the end of the last century - £2m as at end of 1999 – and the picture that emerges is one of ethical investment funds steadily growing in popularity.

Nevertheless, ethical funds have not quite managed to escape the trials of the last 18 months, with inflows slowing and outflows increasing in line with other asset classes. Still, investors appear to be committed to ethical investments – net sales for both retail and institutional investors has been positive each year from 1992, an impressive achievement considering the variable, often erratic, markets during this period.

Despite dips in annual net sales figures, the Ethical Investment Research Service (Eiris) report that managers of ethical funds have indicated 2008 was one of their best years in terms of inflows (the IMA record positive net retail inflows of £94m into ethical equity funds during 2008).

As assets have soared in the last quarter century, so too has the choice of products, with UK-domiciled green and ethical retail funds now available in 53 different shades, colours and sizes. They range from the so-called ‘dark green’ funds – those with a fairly comprehensive set of strict social, environmental and ethical exclusions – to more pragmatic ‘light green’ funds, to thematic funds, which concentrate on specific investment themes, such as climate change or clean technologies.