More investors are looking to do good with their money but are unsure how to go about it.
While 80 per cent of people surveyed by investment giant Schroders say they try to help the environment by recycling or reducing their household waste, just 34 per cent have considered investing as a way to contribute to a more sustainable society.
But whether it is investing in a fund that backs companies doing good in the world or simply choosing a bank account offering debit cards made from sustainably sourced plastic, ethics and finance do not have to be mutually exclusive.
More investors are looking to do good with their money but are unsure how to go about it
Indeed, nearly three-quarters of people surveyed by Triodos Bank believe businesses have the power to create positive social and environmental change.
Bevis Watts, managing director of Triodos Bank UK, says: ‘Investors increasingly recognise the power of money as a tool for change. They know they can exert a positive influence on society by channelling their investments into things that benefit not only themselves but the world around them.’
Yet a majority of investors say they would not know how to find out about ethical investment opportunities. One in seven people are unsure what an ethical fund does.
Good Money Week runs from today to Saturday. It is sponsored by providers including Co-op Bank and Liontrust. The aim is to raise awareness about the ethical options available to savers and investors.
CASE STUDY: I want my savings put to good use – not just sitting in a bank account
Jacqui Furneaux spent seven years travelling around the world on her motorbike, visiting 20 different countries along the way, living on the bare minimum.
Back home in Bristol and working in the local library, she was keen to put her small savings pot to good use. Her backpacking experience left her interested in renewable energy, so when she heard about Triodos Bank’s ethical investment funds she was keen to get involved.
Travels: Jacqui Furneaux was inspired by the energy projects she saw during her trips
She says: ‘It is great to know my money is being used for good. I would much rather it is out there in the world being put to good use than sitting in a bank or building society.’
Now retired, the 67-year-old has money in the Triodos Sustainable Pioneer fund which invests in small and medium-sized companies that focus on sustainability issues such as climate protection and healthy living. Investments include wind turbine manufacturer Vesta and electric car maker Tesla.
Jacqui spent seven years travelling around the world on her motorbike
One of the investments which Jacqui is most excited about is a hydro-power station in Fife, Scotland.
She says: ‘When I read about the station, it reminded me of a watermill I had seen in Pakistan. I thought it was so wonderful to produce electricity with no pollution and it is nice to know my money has helped create something like that.’
The Triodos Sustainable Pioneer fund has returned 14 per cent over the past year.
A number of investment funds aim to generate returns by backing businesses involved in renewable energy. But such investment options have long battled the stigma that prioritising ethical and sustainable considerations comes at the detriment of financial returns.
Ethical funds have strict criteria in place that often rule out investments in businesses operating in controversial sectors such as tobacco or fossil fuels. When shares in these companies thrive, it can leave ethical funds lagging behind.
Yet investors are increasingly seeking out fund managers who prioritise sustainable businesses. More than half of UK investors have increased the amount they invest in sustainable funds over the past five years.
Meanwhile, one in five investors looks for funds that actively avoid investments in companies involved in arms, tobacco and alcohol. Jessica Ground, global head of stewardship at Schroders, says: ‘How companies make money is just as important as how much money they make. While profitability remains the central investment consideration, interest in sustainability is on the rise. More investors are looking for companies that embrace social and environmental change.’
Camilla Ritchie manages the Seven Investment Management Sustainable Balance fund, which has generated a return of five per cent over the past year. The fund invests in assets including wind farms and social housing. She thinks avoiding companies involved in controversial areas of business can help boost investor returns. Ritchie says: ‘It is reasonable to think that a firm producing high levels of emission may be exposed to future legislation, such as a carbon tax.’
Data from Moneyfacts shows that on average, ethical funds have outperformed non-ethical ones.
The average ethical fund has returned 10 per cent over the past year, compared with 9.3 per cent from the typical non-ethical fund. Over five years the returns are 67 per cent and 58 per cent respectively. Only over 10 years have non-ethical funds outperformed.
Despite this strong relative performance, just 1.2 per cent of all investors’ money is in ethical funds.
Investor appetite for ethical options is undoubtedly growing. The amount invested in ethical funds has climbed to £14.4 billion from £10.1 billion a year ago.
There are now 196 sustainable and ethical funds available to investors.
One of the top-performing ethical funds is EdenTree Amity European fund, which has returned 26 per cent over the past year.
The fund backs sustainable businesses across Europe that make a positive contribution to society.
Investments include French telecoms company Orange and German pharmaceutical firm Bayer.
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