Ethical funds remain only a tiny part of the overall market but managers have been casting their nets wider to broaden the appeal of the products.
Data from Tilney Group showed that ethical funds have only a 1.2 per cent share of the overall asset management market in the UK, a figure that has remained static for several years.
Jason Hollands, managing director for business development and communications at Tilney Group, said a lack of a clear definition of what constitutes ethical funds has hampered the sector, as has the fact such investments tend to be more popular among younger people, who typically have less cash.
But moves are underway in the sector to broaden the appeal of the sector.
Bryn Jones, who has been running the Rathbones Ethical Bond fund since 2004, said the major change in the sector in that time has been the addition of “positive” screens.
This means that for an investment to be included in an ethical portfolio, it must not simply be a case of the company in question doing no harm, there must also be a positive impact on the world.
Mr Jones said for a bond to enter his portfolio, it would pass a screen showing it has no negative impact on society and at least one positive impact.
He added that ethical funds have, since he began investing, started to deploy more capital into renewable energy and social housing.
Mr Jones fund is £950m in size, and he said much of the capital that has come into the mandate in recent years has been from investors seeking an element of diversification away from mandates that have not got an ethical screen.
At the other end of his investment career is Lee Qian.
He is one of a group of investors running the Baillie Gifford Positive Change fund.
He said the fund will differ from many traditional ethical funds because it will take a “holistic” approach to deciding if an investment meets the ethical criteria.
This means the fund will look at the positive and negative impacts of an investment, and if the view of the team is that the positive impacts outweigh the negatives then the investment can make it into the fund.
Mr Qian said his fund starts from the principle that “there is no perfect company.”
david.thorpe@ft.com
