John Ditchfield: ethical investment wins on price, performance and the planet

With National Ethical Investment Week in full swing, many in the industry are hoping that the event can go a long way in dispelling some of the common misconceptions often associated with ethical, sustainable and responsible investment.

Statistics released this morning by research firm EIRIS confirm that almost £11 billion is invested in UK green and ethical funds – up from £4 billion a decade ago – and there are some €1 trillion worth of responsibly-managed assets in the UK – contributing to 18% of the total European market for responsible investment, according to the UK Sustainable Investment and Finance Association.

“I question the assertion that ethical investment is a cottage industry”, says John Ditchfield, managing partner at Barchester Green, one of the UK’s oldest ethical independent financial advisers.

“It is reasonably large, but I do think there is a barrier around public perception.

“The general public in the UK still regards it as a bit of a fringe enterprise for people who are nutty about environmental issues.

“In a sense it’s already there in the mainstream; it’s just that individuals don’t recognise that.”

As for the assertion that there is a performance sacrifice to be made when opting for dedicated ethical investments, Ditchfield adds that this is “factually incorrect”.

Ethical funds, just like conventional ones, do vary in performance – there are some that do underperform and there are some that don’t. But there is simply no evidence or noticeable trends to suggest that by investing ethically, you’re guaranteed to get a lower return than if you were to opt for mainstream investments. Just the opposite, in fact.

A recent study by German rating agency Oekom found that firms in the Prime Portfolio Large Caps index – a group of 300 major firms with sustainability accreditations – reaped a 15% better return over a seven-year period between 2004 and 2011 than the MSCI World Index.

This is on top of a study by the now-defunct DB Climate Change Advisors, Deutsche Bank’s climate change research arm, which after looking at over 100 academic papers into sustainable investment, found that 89% displayed evidence for “market-based outperformance” for companies that factored sustainability into their investment strategies.

Ditchfield points to the “three Ps” of ethical investment in order to encourage individuals to invest in this way.

“Firstly, on price, ethical funds are very cost-effective. They’re not expensive funds to invest into”, he begins.

“Secondly, the performance is very good on many ethical funds.

“And thirdly, we do need to look after the only planet we’ve got, because investing in businesses which are about sustainability and protection the environment is very good.

“A fourth point would be to do with values – it’s more interesting to invest, to a certain extent, in line with your values I’d say.”

Ditchfield was last month elected to the UK Sustainable Investment and Finance Association’s (UKSIF) board, and his company, Barchester Green, recently held an event as part of National Ethical Investment Week (NEIW) – called Heroes of Ethical Investment. A number of awards were presented to companies that have excelled in investing ethically over the past 12 months.

Triodos Bank, whose managing director Charles Middleton featured in Blue & Green Tomorrow’s Guide to Sustainable Banking, picked up the pioneer award for its “significant contribution to the sector by encouraging responsible financial practice, thought leadership and innovation”.

Meanwhile, the Cheviot Climate Assets Fund and Kames Capital won performance awards; the UK’s only 100% renewable electricity provider Good Energy was given the award for potential and WHEB Asset Management went home with the one to watch award.

“Provided we can raise the profile of the sector, then it’s a very useful thing”, comments Ditchfield, when asked about the potential impact of NEIW 2012.

“Currently, I think there is a large chunk of the population that can invest ethically and environmentally whilst making a financial return.

“It’s really about educating the public and putting information out into the public domain on ethical and environmental investing. It’s very important for the sector.”

National Ethical Investment Week runs until Saturday, October 20. Join the movement on Twitter using the hashtag #NEIW12.

Further reading:

Ethical investment has taken off despite a ‘great deal of misunderstanding’

UKSIF elects new director to its board

Ethical investment demand rises as individuals turn to sustainability

National Ethical Investment Week 2012 begins

Financial advisers targeted for National Ethical Investment Week

National Ethical Investment Week calls on religious groups to take action