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How green was my philosophy?

The ethical investment card is being pushed under the noses of IFAs as the

winds of political correctness hit the financial services industry.

In July, legislation is being brought in that will force pension fund

trustees to declare their stance on ethical investment.

Trustees are in the process of reviewing their statement of best practice.

The move is not intended to promote ethical investment but is likely to

drive consumers to the doors of advisers as they look for guidance on which

pension funds are ethical and which are not.

The demand for ethical investment is increasing. Friends Provident

spearheaded the ethical investment market with the launch of its

Stewardship unit trust in 1984 and now there is now £20bn in funds under

management in the ethical sector.

There are 31 funds on the market compared with 17 six years ago. Last

week, Autif released a consumer guide to ethical investment funds in a

response to market demand.

But despite the growth of the sector, there are still doubts about how

seriously IFAs take the ethical investment concept.

Ethical Investors Group director Lee Coates says: “IFAs are still cynical

about ethical investment but when I tell them that we have written nearly

1,000 ethical Isas so far this year their jaws drop.

“Advisers do not have to like ethical but they have to know about it

because it is good business.”

The spotlight will be shining on IFAs to demonstrate their awareness of

pension funds&#39 statements of best practice so they can give the right

advice to ethically concerned clients. The National Association Pension

Funds says this new transparency in best practice will push socially

responsible investment up the agenda and arouse further consumer interest.

NAPF director of investment service David Gould says: “It is a fast moving

area where interest will continue to grow, particularly as the vocabulary

becomes less negative and looks at how companies should engage with ethical

issues more positively.”

Murray Johnstone head of ethical investment and investment director Andrew

Preston says: “Press coverage of the change will generate increased general

awareness and will mark a sea-change in the way people see socially

responsible investment.”

Consumer interest looks set for a further boost as “paler green” funds

come on to the market. These funds invest in companies which are not

particularly ethical but can be defined as having the best socially

responsible track record when comparing like with like.

Such products aim to offer a more balanced stock selection than pure

ethical funds and are suited to investors who are more pragmatic about

returns but would like to take some ethical responsibility.

These funds allows for a greater spread of stocks and the possibility of

higher performance compared with traditional “dark green” funds.

Friends Provident is one company launching such a fund later this year.

External communications manager

Jim Murdoch says: “With this there is no need to change either investment

philosophy or stock selection but it still allows investors to know they

engaging in socially responsible investment.”

But analysts believe it would be easier for advisers if definitions were

tighter on what constitutes ethical investment.

Warburg Dillon Read analyst John Szymanowski says: “People are very unsure

on what the term actually means. It would better if providers could say:

&#39We will definitely invest in this type of company and definitely not

invest in other types.&#39

“Also, it would help if you knew what sectors the funds will go to, for

example, if they are likely to cluster in the UK or Far East.”

Independent researcher Eiris believes ethical investment is a big business

opportunity for IFAs. It publishes a guide designed to help IFAs understand

ethical investment sufficiently so they are comfortable advising on the

products.

Eiris head of client services Karen Eldridge says: “IFAs have no excuse to

not ask the ethical question. How can advisers claim to know their clients

if they do not know what their values are?

“A responsible IFA should always offer an ethical choice. There is a huge

demand for ethical investment. There are many more providers now, so

offering choice to clients is not a problem.”

IFAs who remain cynical about ethical investment may be in for a rude

awakening.

A recent Eiris survey shows that 77 per cent of consumers would like their

pension funds to be invested ethically.

They will need to swot up on all the issues if they are going to give

their clients

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