This was the first ethically screened fund when it was made available to UK retail investors from June 1984 but the origin of selecting investments on their moral basis goes back much further than the 1980s.
Eiris, the provider of independent research into the social, environmental and ethical performance of companies, argues that the roots of ethical investment are traceable to religious movements, including Quakers and Methodists, who were concerned that heir choices should support temperance and fair employment conditions for workers.
At the beginning of the 1900s, when the Methodist church began investing in the stockmarket, it consciously avoided companies involved in alcohol and gambling. Into the 20th century more churches, charities and also individuals began to take account of ethical criteria when making investment decisions.
The US led the way for ethical retail funds with the arrival in 1971 of the Pax World Fund, set up to help investors avoid returns made by association with the Vietnam War, but it was probably a growing understanding of the apartheid regime in South Africa in the 1980s which fuelled the desire in the UK for both shopping and investing ethically.
In 1983, Eiris was set up and a year later the UK’s first ethically screened unit trust was launched by Friends Provident – the Stewardship fund which is managed by F&C. The fund’s ethical policy assessed companies partly on the basis of their company policies on equal opportunities and anti-discrimination in the workplace and led the way for further investment filters focusing on concerns such as pollution, deforestation and climate change.
From being derided by cynics as “the Brazil” at its launch (because you would have to be nuts to invest in it, critics suggested), the daddy of the UK ethical funds grew from just 10m in 1986 to 453m at May 25 this year, according to Morningstar.
Looking at the ethical sector as a whole in terms of funds invested, Eiris says at December 31 2008, based on 81 UK-domiciled green and ethical retail funds, there was around 6.8bn invested, representing almost 750,000 accounts.
The figures show a substantial rise from around 304,000 accounts in 1998 when less than 2.2bn was invested ethically but statistics indicate that the growth of funds under management has stalled somewhat over the last few years In 2005, there was 6,078m invested, rising to 8,881m in 2007 but falling back to 6,794m by December 2008.
Even taking into account the market turmoil which saw all funds punished last year, surely the growth of new funds flowing in would have generated more encouraging figures?
Gaeia Partnership managing director Brigid Benson says: “These figures do not reflect our experience of the sector. We have seen millions invested by our clients since 2005 but I think one of the biggest problems, if the wider market does seem to be stalling, is the lack of depth of knowledge of ethical funds among IFAs.
“Look on Ifap’s site and you will see around 700 IFAs claiming they can offer ethical investment advice but many do no more than dabble or smile politely if their client asks about investing ethically.”
Where there is “dabbling”, IFAs could be doing their clients and their businesses a disservice. Recent evidence points to ethical investors being “stickier” than standard investors and to a deep-ening appetite among UK clients for investing with a conscience.
Investment Management Association figures from May this year show that retail inflows into ethical funds have now exceeded outflows for each of the 14 months since February 2008.
Penny Shepherd, chief executive of UKSIF, the sustainable investment and finance association, says: “These numbers add even more weight to the argument that green investors are sticky. They are typically long-term investors who look beyond short-term market fluctuations and want to benefit from sustainable wealth creation.”
Research from Friends Provident suggests that nearly three-quarters of people in the UK believe it is important that companies take social, ethical and environmental issues seriously and around 54 per cent think ethical investing is far more important than it was 25 years ago.
Friends chief executive officer Trevor Matthews says: “Many people take an ethical approach to their finances by avoiding investing in companies that are not socially responsible. We are seeing this trend continue into people’s investing habits, with over half prepared to accept a lower return on their investments if it means investing in companies that are socially responsible.”
Research last month from The Co-operative Investments shows that 18 per cent more people intend to invest ethically this year. The Co-op’s own ethical fund – Sustainable Leaders Trust – has seen unit growth throughout 2008 of 16 per cent and it says growth is continuing during this year.
As the market for ethical investing has matured, there has been an ever widening choice of funds and a broadening of access to chasing returns from a moral position.
These days, there are a range of ways that an ethical strategy can be applied beyond traditional negative or positive screening.
The engagement method does not necessarily exclude, include or prefer companies but the fund manager and investors actively encourage companies to adopt social and environmental best practices. Alternatively, the inclusive best in class approach applies social, environmental and ethical guidelines to generate preferred selections. This means that clients might still be able to invest in company relating to fossil fuels, for example, so long as it was the one with the best ethical credentials.
Over the years, more sophisticated selection filters have helped bring ethical investing in from the fringe of the investing world and into the mainstream, giving advisers greater reason to bring ethical concerns into their conversations with more types of clients.