Robert Hague, sales director at Emerald Knight, considers why socially responsible investment is becoming the chosen vehicle for many investors who demand more than just financial growth from their money.
Ethical investment is a growing trend and its days as a niche market are long gone. While some dismissed ‘going green’ and fair trade as passing fads, they’ve quickly gained momentum, and the same can be said for socially responsible investment (SRI), which is having significant importance to the forward-thinking investor.
Since the near collapse of the banking system and rapid decline in the global stock markets, there’s been increasing levels of concern over the stability of traditional investments which people have often relied upon heavily as their ‘nest egg’. And there’s no doubt that it’s led to much better awareness of how financial institutions use their customers’ money. In addition, as the global economy has struggled, awareness of global warming has increased, the world’s population has continued to grow at a rapid pace, people are becoming more concerned about human rights, and the nation is become increasingly aware of the impact of their choices.
As a result, more and more people are making an effort to have a socially responsible outlook to their investments. Just how much is reflected in figures from EIRIS, the non-profit sustainable investment research firm, showing that the amount of money invested in Britain’s green and ethical retail funds has recently reached a record height of £11.3bn. Moreover, in the last decade, the number of ethical investors has tripled, from 250,000 to three-quarters of a million.
Research from YouGov, released as part of National Ethical Investment Week has revealed that 42% of UK adults with investments want to ‘make money and make a difference’, and figures from Ecclesiastical Investment Management show that 35% of investors believe they should act ethically although they have yet to enter the ethical investment market. Many of them are simply not aware of the options that are available.
Ethical and responsible
Ethical investment basically allows you to invest in a socially responsible way, without having to compromise your principles and moral stance. This can be as simple as avoiding companies which engage in activities you wouldn’t want to support, such as tobacco firms, gambling enterprises, or companies investing in arms manufacture or nuclear energy. Or choosing to support companies which have positive social and environmental policies in place, such as renewable energy, carbon offsetting, or sustainable timber.
And despite the perception that the SRI is considered to be a fairly recent phenomenon, the concept actually goes back hundreds of years when the Quakers banned members from investing in the slave trade. Even until fairly recently, investors who wished to invest in ethically-minded products were often perceived as a periphery group. But in recent years, the concept has blossomed into a viable and lucrative investment strategy.
One of the most popular forms of SRI at the moment is carbon offsetting. When you buy a carbon credit from a third party, you’re basically helping to fund a project which will reduce or remove a metric tonne of carbon emissions from the atmosphere, and at the same time, you’re able to offset some or all of your own carbon emissions. The company will package carbon dioxide emission reduction units into credit bundles that can be purchased as carbon offsets.
But there are also many other SRI opportunities across the globe, from forestry investments in Brazil that aim to eradicate illegal logging in environmentally-sensitive areas, to bonds that invest in bamboo plantations in Central America, and overseas eco resorts which target water recycling, energy efficiency and biodiversity in the community.
Growth in investors
Over the last eighteen months, there’s been significant growth in so-called ‘ordinary’ investors who are finding that SRI fits their financial requirements. People who may previously have invested in property or dabbled in the stock market are looking for something different, but while they’re more conscious of the environmental and social impact their choices could make, they’re by no means prepared to sacrifice good investment sense to buy into such products. No investor wants to settle for a serious compromise on returns, and they should never think that it’s a choice between ethics or growth.
It’s a shame that many people still feel that they can’t afford ethical investments because they’d be accepting poorer returns in return for a clear conscience. This is a big misconception, borne out in research from Emerald Knight which shows that while 16 per cent of British people would only ever invest for personal profits, only 30 per cent think that you can have both profits and principles when it comes to a socially responsible approach to investment.
Choosing to invest ethically actually means that the two can go hand in hand. SRI typically involves investment in the few industries which have managed to remain in positive growth through the global recession. And since people have lost trust and confidence in the more traditional investment models, the returns demonstrated by SRI products combined with their social, environmental and ethical benefits make for a very compelling investment case.
