Investing with principle: … ethical investment movement in the UK

For A Change, June-July, 1996 by Kenneth Noble

Another surprise was the rate of investment. Early estimates were that the fund would attract between [pounds sterling]2.5 and [pounds sterling]5 million, whereas the figure is now over [pounds sterling]600 million.

Others were quick to follow the initiative and there is now [pounds sterling]1 billion invested in 39 ethical or environmental funds in the UK run by 28 different management groups. Their investment criteria vary, some concentrating on `green' issues and others on such factors as not supporting armament manufacturers or breweries.

Despite `spurious' claims to the contrary, `the movement as a whole has performed remarkably well,' maintains Jacob.

Investment advisers Holden Meehan, who produce An independent guide to ethical and green investment funds, accept that some people may be happy to tolerate a belowaverage return on their investments for the sake of funding a particular endeavour or cause. But they argue in their 1994 report that what attracts most people to ethical investment is the idea of `profit with principle... the desire to bring about some sort of positive change in the world--a quiet revolution through the unlikely medium of capitalism'. An above-average performance `is not only desirable, it's also readily achievable'.

This is a sentiment that Tessa Tennant, Head of Global Care Research at the pension and investment company, NPI, would agree with.

She cites research by the Washingtonbased Investor Responsibility Research Centre together with Vanderbilt University that shows that companies' environmental records correlate well with their investment returns.

`Our inspiration is sustainable development,' she explains. `If we don't look after the planet it won't look after us.' Launched in 1991, NPI's Global Care funds total some [pounds sterling]30 million.

Tennant explains that they back industries (such as recycling, pollution control, healthcare and social banks) which offer solutions to environmental and social problems. They also encourage companies to address environmental and social issues.

She is convinced that environmentally responsible companies can offer a good longterm investment. 7.7 per cent of the Global Care Unit Trust fund is in `water management'. `Over 1 billion people in the world do not have ready access to piped water and over 1.7 billion have inadequate sanitation facilities. Water management has to be a growth industry,' argues Foresight, the Global Care Team's newsletter.

The Social Affairs Unit, a think-tank, recently issued a report, What has ethical investment to do with ethics? One of its authors says that `ethical investment simplistically divides products and industries into good and bad, whereas ethics is about careful judgements on what people do with products'.

In response, Jacob concedes that no company is perfect but argues that `it must make sense to invest in those companies which do more good than bad'. He also claims that the think-tank has failed to research its subject adequately and has been misleading in several of its conclusions.