The perception of ethical, socially responsible or environmental, social and governance investing has changed substantially in the past decade, bringing it into the mainstream investment arena.
Figures from the IMA show the value of funds under management in UK-domiciled ethical funds has increased dramatically moving from £2.88bn in 2003 to £7.59bn at the end of 2012.
Part of this increase has been the improved access to ethical, SRI or ESG-focused investment vehicles, and partly the realisation that investing responsibly does not automatically mean poorer returns on your investment. For example, the £323.4m Kames Ethical Equity fund run by Audrey Ryan (see page 31) has returned 220.9 per cent in the 10 years to May 22 compared with the IMA UK All Companies sector average of 150.94 per cent, according to FE Analytics.
But while overall the funds under management have increased, the actual number of UK-domiciled ethical funds in the IMA sector has declined in the past five years from 62 in 2008 to 52 at the end of 2012, according to the IMA.
In addition, the latest figures from the IMA on ethical fund flows notes the net retail sales of these types of funds fell from £200m in 2011 to just £12m in 2012, the lowest level since 1992.
However, while the UK ethical sector has experienced a tough start to 2013, with the IMA figures showing further retail outflows in January and February of a combined £30m, the global outlook for ethical investing remains more positive.
The first report from the recently established Global Sustainable Investment Alliance highlights that at least $13.6trn (£9.02trn) of professionally managed assets incorporate ESG concerns into their investment selection and management.
In addition, the findings from its survey of the sustainable investment landscape show 65 per cent of the known global sustainable investing assets under management are in Europe, which, when combined with the US and Canada, constitutes 96 per cent of SRI assets.
Ethical or responsible investing is something that might not appeal to every investor, but the key thing to remember is that not all funds and strategies utilise a ‘dark green’ negative screening strategy, with many ‘lighter green’ positive or best-in-class strategies coming to market.
However, research from Eurosif’s 2012 High Net Worth Individuals & Sustainable Investment Study shows sustainable investments by European HNWIs increased by almost 60 per cent in the past two years compared with an 18 per cent increase in overall European HNWI wealth over the same period. In addition their allocation to sustainable investments increased to €1.15trn in 2011 compared with €729bn in 2009, which it claims reflected persistent demand even in volatile markets.
Nyree Stewart is deputy features editor at Investment Adviser
FUND PICKS
Premier Ethical
One of the oldest ethical equity funds in the IMA sectors, the £56.8m Premier Ethical fund, run by Chris Wright since 2009, has continually outperformed the FTSE4Good UK index across most time periods. The 10-year return of 150.57 per cent to May 22 compares favourably with the 66.1 per cent index return. Launched in 1986, the fund adopts a strategy to build a portfolio of stocks that are making a positive contribution to society.
Royal London Ethical Bond
One of the few ethical bond options for investors, the £178.8m Royal London Bond fund is run by Eric Holt and invests predominantly in investment-grade UK corporate bonds that meet pre-defined ethical criteria. The policy of the fund considers a number of ethical issues including alcohol, armaments, gambling, pornography, tobacco, human rights, animal testing and the environment. Performance in the longer term is mixed, with the fund slightly underperforming the iBoxx Sterling Non-Gilts All Maturities index by 3.3 percentage points in a five-year period to May 22. But it has outperformed the benchmark in both one and three-year time periods.
EDITOR’S PICK
Standard Life Investments UK Ethical
Run by Lesley Duncan since June 2004, the £164.4m fund aims to provide long-term growth by investing in a portfolio of UK equity assets that meet a set of strict ethical criteria. The criteria is agreed with the Standard Life ethical committee and can be amended when appropriate. The fund, launched in 1998, utilises both an exclusion and inclusion approach to ethical investing, with its largest weighting in industrial stocks. The fund’s performance is consistently strong, outperforming the IMA UK All Companies sector in one, three, five and 10-year periods.
