Investing ethically is a process with ‘intrinsic benefits’

A recent report outlined that the financial performance of ethical and mainstream investment funds barely differed. Here, Julian Parrott, partner at independent financial advisers Ethical Futures, describes his thoughts.

Much like the organic food debate, we don’t really ascribe the ability to make you ‘financially healthier’ to ethical, socially responsible or sustainable funds.

Rather, that the process of investing ethically is in itself a process with intrinsic benefits that either helps clients reflect their values more effectively or may contribute in one way or another to a more socially just or environmentally sustainable world.

Proponents of organic products are concerned about the impact on the environment of mainstream farming, pollution of the water table, destruction of hedge rows and reduction in biodiversity. They may hope that the veg tastes better but would rarely say that it would actually make you healthier.

This really mirrors the ethical, SRI and sustainable argument.

It is valid for clients to try and avoid certain activities if they have strongly held beliefs. Equally, if you invest in businesses that have a positive approach to their relations with staff, supply chains and the environment in which they exist, then this process of actively investing and seeking to influence companies to be better corporate citizen is in itself of intrinsic social and environmental value whether or not that actually shows itself in the bottom line.

The fact that these studies seem to show that there is no significant disadvantage to incorporating environmental, social and corporate governance (ESG) approaches is in itself a positive outcome.

We live in a constantly evolving economic world and with the rise of the importance of sustainability and environmental responsibility, I think that in the longer term these factors may still add some ‘alpha’ to investment performance as well.

Julian Parrott is chair of the Ethical Investment Association (EIA) and a partner at Ethical Futures, financial advisers based in Edinburgh.

Further reading:

Talk of high returns amongst ethical investors detracts from the point

Why the best financial advice includes ethical investment options

The ethical investment performance myth

IFA complaints continue to drop

The Guide to Sustainable Investment