Your IndustryOct 16 2014

Different ways to make socially responsible investments

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Investors can access SRI styles through all the typical routes: holding shares in companies, funds, trackers, indices and segregated mandates.

Traditionally Neil Cowell, head of UK retail sales for Vanguard, says the most common way to invest in a socially responsible way has been through pooled accounts, or funds (both active and passive approaches).

While some SRI-focused exchange traded funds do exist, Mr Cowell says they are newer in the evolution of exchange-traded funds and represent a small slice of the ETF asset pie.

In addition, he says your clients could invest in individual securities of companies that align with your core beliefs. But he argues funds or ETFs would allow access to broad diversification at a lower level of investment.

Jamie Sutton, director of Premier, says the most suitable method of investment for your clients is dependent on the investor’s requirements and aims for their socially responsible investment. He also states a belief that successful long-term investments will by definition need to be sustainable.

Mr Sutton says: “Critics would argue that investing in a socially responsible manner limits exposure to diversification when compared to mainstream investments.

“We know that the future is certainly going to change, therefore we need to think differently when considering long-term investing, which in turn points to investing in a sustainable manner.

“Over the long term we know that the global population is likely to grow, and that existing natural resource supplies are already limited.

“As such it suggests that companies that address matters which include the supply of clean energy or tackle challenges facing society such as pollution, waste mountains and environmental degradation provide a compelling investment proposition.

“The environmental issues that society faces today are projected to increase in the future, which indicates that there is going to be additional demand for sustainable SRI solutions.

“This is something that we have seen first-hand from our own clients, as interest in SRI undoubtedly increasing, with green and ethical assets under management reported to have reached an all-time high of £12.2bn last year. ”

Peter Michaelis, head of equities at Alliance Trust and head of sustainable and responsible investment at Alliance Trust Investments, says advisers should find that employing a fund manager to help actively manage a portfolio of responsible companies is the best route to socially responsible investment.

He says an SRI fund manager should have the expertise and time to review companies effectively and engage with them as an influential institutional investor.

Mr Michaelis says: “Investing in a fund also means that you are diversifying the risks that are associated with any investment.”