Rathbone's specialist ethical and sustainable investment business has reached assets of £1bn for the first time.
The company said it conducted a poll which showed 57 per cent of the public think an investment manager has a responsibility to ensure their holdings are managed in a way that has a positive impact on society.
John David, head of Rathbone Greenbank Investments, said “The UK has become a hub for innovation in sustainable investment. What was once seen as niche has now become mainstream. We are pleased to be at the forefront of this movement, driving change in business and society through ethical investment.
"We seek to enhance long-term investor returns while endeavouring to play a leading role in the responsible deployment of capital.
"Contrary to some historic perceptions of ethical investment performance, we believe that companies demonstrating strong social and environmental management and good corporate governance, while also providing products and services that meet the needs of a changing world, are likely to be good long-term investments.”
Mr David said Rathbone Greenbank had also dedicated time and resources to encouraging positive change in business practices, such as through its work to see the inclusion of a supply chain transparency clause in the UK's Modern Slavery Act 2015.
Bryn Jones, who runs the £950m Rathbones Ethical Bond fund, which is a separate entity to the Greenbank arm within Rathbones, revealed the investments that have seen him beat off traditional rivals who are unconstrained by social impact considerations.
Mr Jones' fund returned 7.7 per cent over the past year, compared with just more than 3 per cent for the average fund in the sector in the same time period. It is the top performer in the IA Corporate Bond sector over the past year, and also in the top decile of funds over three and five years.
The fund returned 54 per cent over the past seven years, compared with 39 per cent for the average fund in its sector in the same time period, according to data from FE Trustnet.
All of the assets in the portfolio must have at least an impact that is positive for society, and none that are negative.
The manager recently added “predatory lending” as a screen on the fund, meaning he won’t invest in companies he considers to be engaged in the practice of lending at excessive interest rates.
He said performance over the past year has been driven by his decision to own bonds with a shorter date to maturity.
He owned more of those bonds than the market average because he thought interest rates would rise sooner than expected in the UK.
Mr Jones said the fund has attracted interest from investors whose priority is not just based on ethical concerns, “but they have been burned by owning the bonds in companies that have suffered for not being sustainable. Those investors look to us to have part of their portfolio in an ethical fund”.
The housing sector, particularly social housing is an area to which Mr Jones is deploying more capital.
He said this is a relatively new area of ethical investing, but not-for-profit companies such as London and Quadrant (L&Q) have grown into substantial operations and the bonds good investments.
Mr Jones said he expects ethical investments to do well in coming years simply because some of the investments that are bedrocks of non-ethical funds are displaying traits that could lead to underperformance in the years ahead.
He said tobacco could be a sector that suffers as demand falls and regulation rises, while the traditional auto sector is likely to suffer as more environmentally friendly vehicles take to the road.
A feature of Mr Jones' fund is his refusal to invest in government bonds.
He regards all government bonds as unethical investments, because governments ultimately buy weapons and many buy nuclear weapons.
Jason Hollands, managing director for communications at Tilney Group, said the performance of ethical funds tends to move with the market cycle, as such funds will likely have an underweight to mining and banks, which do well in certain market conditions and not others.
david.thorpe@ft.com
