George, a fictional but typical investor, proves that values and returns can go hand in hand, after making a 30% return in three years. George’s portfolio is 100% real and is based on actual retrospective fund data.
Financial advisory firm Holden & Partners created George to demonstrate how advisers can take their client’s values into account during the investment process. Many investors now understand the impact their money can have and want to ensure this is as positive as possible, whilst still making financial returns.
According to the organisation, screening activities out for ethical reasons has become less important to investors. However, when asked questions about their ethical values, investors often express concerns on a wide range of issues.
Data from investment research firm EIRIS shows that the total value of the UK green and ethical fund market stands at £12.2 billion. The figure is a rise of around £1.2 billion from 2012, and is a dramatic increase from the £4 billion that was invested in UK green and ethical retail funds in 2001.
The figures are also evidence that the market is growing and can offer opportunities to both investors and financial advisers.
A YouGov poll conducted for National Ethical Investment Week (NEIW) found that nearly two-thirds of British investors want to be offered sustainable or ethical investment options. A similar number of investors also stated they were concerned about losing money by investing in unsustainable companies, such as ones from the oil and gas industry.
George’s ethical values were selected using Blue & Green Investor’s survey. The survey was used as a tool to gauge the most important issues to investors today.
As a result, George preferred to exclude companies from his investments that would harm animals, cause environmental damage or destruction and have social, health or human rights issues. He was also keen to actively invest in environmental solutions or practices, positive social inclusion and dynamic social or demographic themes in order to make a positive impact.
Holden & Partners created a £100,000 portfolio with an eye on George’s values. The portfolio contains a diverse range of ethical funds but will still need to be adapted to meet the client’s needs exactly.
Stuart Ryan, investment manager at Holden & Partners, explained that while one of funds, Pacific Assets Trust, includes sustainability issues as part of their investment process, investors often express concern with investment exposure to Asia Pacific and global emerging markets.
As a result, financial advisers need to gauge where their client’s boundaries are. By making clients aware of where the funds are likely to be managed on a different basis to their values, financial advisers can ensure they accurately incorporate the correct ethics into the portfolio.
Holden & Partners said, “We would need to point out to George that the Cheviot Climate Assets fund, the Pacific Assets Trust and both of the L&G funds have no official ethical screening process.
“Then we would help George link to the Blue & Green Investor fund library so that he could follow up easily on how each fund overlaps with his values and raise any concerns he might have prior to investing.”
The fund library allows users to create a list of funds that meet their criteria. Filtering options include geographical location, ethical screens and fund classes.
Mark Hoskin, a partner at Holden & Partners, said, “In the analysis we have done, we do not find that it is ethical, or sustainable overlay which is the biggest factor in returns, but rather the fund managers’ decisions within those parameters.
“Based on historical data and our understanding of how the future might pan out, we are convinced that investing on a longer term basis with values in mind will not disadvantage investors and indeed may benefit them.”
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