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The green gap

Gregor Watt says people’s professed interest in ethical choices can evaporate when it comes to actually making an investment

Last week, the spotlight was firmly on ethical and environmental investing with the second annual National Ethical Investment Week. Behind the initiatives and PR campaign to raise awareness of ethical and socially responsible investing there seems to be a divergence between what people how people say they want to invest and what they are doing.

Among the many statistics on ethical investing rolled out in the week were surveys pointing out how many would like the invest ethically if they had the option.

Co-operative Financial Services reported that 65 per cent of investors are significantly interested in ethical investment once they have had the concept explained to them while Friends Provident says 74 per cent think it is important that companies take social ethical and environmental issues seriously.

UKSIF, the UK Sustainable Investment and Finance Association, also points out that investors’ demands for ethical behaviour from companies and the Government is on the rise. Its research shows that 31 per cent of people think ethical investment should be a key economic indicator reported at the Budget alongside inflation figures and GDP growth estimates. It also says 27 per cent of people think financial advisers should be required to ask investors if they are interested in green or ethical investments.

But despite this professed interest, the level of intention does not seem to transfer into sales of ethical funds.

Informed Choice managing director Martin Bamford says: “In reality, it is not as high as half of clients that ask about ethical investing. We get maybe one in 10 at the absolute maximum, it is maybe more like one in 20 asking and ethical options. By the time we start to get into the detail of their plans, it is nearer one in 50 or even one in 100 who end up investing this way.

“When people start to understand the restriction on choice and the investment risk, the number who carry through on their intentions falls away.”

Ethical funds have seen strong inflows of retail money this year. Figures from the IMA show that in the third quarter, retail investors put £59m into ethical funds.

UKSIF chief executive Penny Shepherd says: “Investment in ethical funds have returned to levels not seen since before the credit crunch took hold, with a near threefold increase in year on year net sales – the highest since 2007.”

But ethical investments still only account for around 2 per cent of all assets invested in the UK. In the same period as ethical funds took £59m, a total of £7.2bn was invested by retail investors.

This gap between intention and action has been highlighted before and UKSIF acknowledges that there is a green gap between intention and action. Its figures show 49 per cent say they would like to invest or save money and make a difference but only 8 per cent have an ethical or green investment or savings product.

A number of initiatives during the week could make it easier for consumers to find ethical and socially responsible saving and investment products.

The launch of ethical finance website yourethicalmoney.org, backed by Eiris, provides a one-stop shop for information, including an ethical investment calculator to find funds that meet individual ethical criteria.

But Bamford warns that investment managers and product providers should be wary of artificially trying to stimulate demand if investors do not want the product or services offered.

He says: “The growth in the level of assets is testament to the fact that it is increasingly popular but I think it would be wrong to try to raise the take-up of this beyond the demand for it. If there is demand and providers and fund managers are delivering what is wanted, then people will take it up. But if they are not and if the demand is not there, then it will not happen. I do think managers should be artificially inflating demand, they should be trying to satisfy existing demand and ensure they understand what investors are looking for.”

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