In the UK, 2012 has been an interesting year for ethical investment. Big scandals have hit big banks, consumer protests and investor revolts on tax avoidance and executive pay made headline news and campaigns such as Move Your Money and National Ethical Investment Week have helped to raise the profile of ethical finance. All of this has taken place alongside a growing sense that a more long-term, responsible approach to investment is urgently needed.
Surveys undertaken by EIRIS and others continue to confirm public enthusiasm for ethical investment. In the UK, EIRIS’ 2011 Ipsos MORI consumer poll found that 82% of the consumers want financial product providers to pay more attention to environmental, social and governance (ESG) risks when deciding which companies to invest in or lend money to, as part of ensuring good financial return. Whilst in France, EIRIS’ 2012 Ipsos MORI poll found that over 50% of French retail investors think environmental, social and ethical criteria are important when making financial decisions.
Against this backdrop of growing interest in ethical investment, FairPensions’ recent report which claims UK ethical funds are failing to represent the views of their customers by focusing mainly on negative screening and failing to engage with companies to improve performance sounds, at best, like a missed opportunity for the ethical investment community as a whole.
In EIRIS’ 2010 Ipsos MORI national opinion poll, consumers felt that banks and financial institutions should prioritise current ethical concerns such as protecting human rights, tackling climate change, protecting the environment and investing in fair trade in their lending and investing activities, more so than avoiding ‘sin’ issues relating to the manufacturing of alcohol, tobacco and gambling which have traditionally been the focus of ethical investors.
Survey respondents gave the following issues the highest priority: human rights (67% scoring 7 – 10), investing in fair trade (66%), protecting the environment (62%), avoiding arms manufacturers (61%) and tackling climate change (59%). A smaller proportion prioritised the avoidance of companies involved in the manufacturing of alcohol (22% scoring 7 – 10), tobacco (37%) and gambling (38%).
Consumer attitudes to ethical investment are clearly evolving, but it’s important to remember that issues such as gambling, pornography, tobacco production and weapons manufacture also remain priority areas of concern for many investors.
Over the last decade we have developed new criteria to cover a broad range of societal concerns such as climate change, water and resources scarcity, human rights and environmental issues. We have developed research criteria which are relevant to specific sectors or areas of the world such as obesity, indigenous rights, access to medicines or women on the board. We have also launched engagement and voting services which enable investors to become active owners and exert a positive influence in the companies within which they invest.
A growing number of ethical funds in the UK and elsewhere are embracing this broader agenda of issues and are using our positive criteria and sustainability ratings to avoid sustainability laggards, engage to improve sustainability performance, or to invest in companies providing solutions to sustainability challenges.
But mainstreaming green and ethical investment isn’t just about ensuring a good range of green and ethical financial products are available to all consumers across all aspects of ethical finance. It’s also about ensuring that retail fund managers embed sustainable investment principles across all funds under management, not just in the green and ethical funds they offer. This might mean engaging to improve performance, or integrating ESG factors into investment decisions to reduce risk and identify investment opportunities.
Ethical opinions and priorities differ from person to person and the 90+ UK green and ethical funds currently available already offer a variety of investment options to UK investors. However, there is scope for some existing funds to broaden the scale and scope of their investment approach and also room for new funds based on more positive sustainable investment themes.
Levels of transparency also need to improve: EIRIS’ YourEthicalMoney.org and the European SRI Transparency Code are both designed to help with this – and there is considerable scope for funds to evolve further to reflect the concerns of investors.
Over the last 30 years, millions of investors across the world have supported ethical investment by investing in funds which have driven improvements in corporate behaviour and acted as a catalyst for change in financial institutions by championing the advantages of long-term, sustainable investment.
Looking ahead, there is scope for ethical funds to achieve much more. EIRIS will be examining some of the key issues identified in the FairPensions report and explore ways to make ethical investment bigger and better in 2013. We invite you to join the conversation.