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Sustainable Investing - October 2015



    Just a few years ago it would have been called ‘ethical’ investing, with the negative connotations that phrase brings to mind for some investors. A large number still associate ethical, responsible, or environmental, social and governance (ESG) investing as approaches that lead to lower returns.

    It is perhaps one of the reasons why last year’s National Ethical Investment Week was rebranded Good Money Week (October 18-24 2015), with the UK Sustainable Investment and Finance Association noting the move was made to “make the campaign relevant and accessible to a much wider audience”.

    Already a key focus in the institutional arena, with many pension funds and investment houses signed up to the UN Initiative for Principles for Responsible Investment (PRI), is it time for retail investors to take the initiative in this area?

    Earlier this year in a panel session at the PRI in Person conference in London, YouGov research on behalf of the PRI revealed the level of interest in various ESG issues by individual retail investors. The results show that more than 60 per cent of those surveyed in the UK care about executive pay and tax loopholes, while more than 70 per cent are concerned about child labour, and 50 per cent are interested in the fossil fuels divestment debate.

    But Steve Waygood, chief responsible investment officer at Aviva Investors, pointed out that while it is important to understand the retail market’s views on these issues, there is a discrepancy between what these investors are saying and doing.

    “When you ask someone, ‘Do you care about how your money is run?’ People will of course say, ‘I do care.’ But it might be, and often is, the first time they have really thought about it. So why are they not thinking about it more? It is because there is a massive gap in financial literacy. There is a retail audience abyss in understanding how finance works and how their money is run.”

    He also pointed out that retail advisers are not required to look at the responsible or sustainable investing area. “If they were,” he added, “we’d probably start to see a change.”

    Catherine Howarth, chief executive of ShareAction, meanwhile suggested that encouraging engagement and responsible investing processes could improve fund flows and attract new investors.

    “The millennial generation is all switched on by digital tools and expects a TripAdvisor-type experience where they can recommend and access information and be really empowered. They do care about the RI [responsible investment] issues, and it’s a huge opportunity for the RI part of the wider investment industry to prove how relevant these themes can be to drawing in customers and restoring trust in the wider investment and financial services industry.”

    But it is clear more education is needed. While the establishment of the PRI in the past 10 years has led to a “transformational” change in the approach to ESG in the institutional market – with every tender document having at least one ESG question – “no one is addressing the retail market”, said Mr Waygood.

    Providers, however, do seem to be waking up to the growing interest in this area. A search of the Investment Association sectors throws up 54 funds with ‘ethical’, ‘responsible’, ‘sustainable’, ‘SRI’ or ‘social’ in their titles. Of these, 30 have launched in the past 10 years and it is likely more are on the way.

    While this type of investing is not for everyone, ethical funds currently account for almost £10bn of assets under management, according to the Investment Association, so it is an area to bear in mind when reviewing a portfolio.

    Nyree Stewart is features editor at Investment Adviser



    Number of IA-listed funds with ‘ethical’, ‘responsible’, ‘sustainable’, ‘social’ or ‘SRI’ in their titles


    Total return of the MSCI ACWI ESG index for the 12 months to October 9 2015


    Total return of the MSCI AC World index for the 12 months to October 9 2015


    Percentage of people unaware they have sustainable and ethical investment options

    Source: YouGov research on behalf of UKSIF

    In this special report


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    1. How much in assets under manaement do ethical funds account for, according to the Investment Association?

    2. Ethical funds account for how much of the industry’s total funds under management?

    3. YouGov research for the PRI reveals what percentage of retail investors in the UK care about executive pay and tax loopholes?

    4. In 2014, the chief executives of FTSE 100 companies received how many times the pay of average UK workers?

    5. Three major pension funds have announced plans to boost investments in low carbon industries by more than how much by 2020?

    6. Research by the PRI found that in all the countries it surveyed apart from one investors would like more consultation with their fund manager on meaningful issues. Which country was it?

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