Prompted by a growing awareness of environmental issues such as climate change and high profile environmental disasters caused by business activity, there is an increasing focus on ethical investments.
As more investors look to use ethical investment products there is likely to be a greater scrutiny of the arrangements fund managers have in place to regulate their investments and allow investors to make informed choices.
The Ethical Investment Association, an association of financial advisers, recently presented four asset managers with a 2010 EIA Transparency Award, recognising excellence in implementing the European Socially Responsible Investment (SRI) Transparency Code.
Axa Investment Managers, Henderson Global Investors, Jupiter Asset Management and Rathbone Unit Trust Management all received the 2010 award for how they use the code and make information available.
The European SRI Transparency Code is managed by the European Sustainable Investment Forum (EUROSIF) in partnership with forums in countries across Europe, including the UKSIF. It is a disclosure code which requires signatories to publish responses to a series of question about their ethical investment strategy.
These questions cover issues like the research process fund managers carry-out and whether divestments have been carried out on socially responsible investment (SRI) criteria.
Julian Parrott, chair of the Ethical Investment Association and partner of independent financial advisers Ethical Futures said: “Investments clients are increasingly aware of the impact of their investments on society and the environment. Increased transparency by product providers allows financial advisers and their clients to make informed choices.”
In June, EIRIS, the ethical investment research service, said the total value of investments in UK ethical retail funds was £9.5billion, which EIRIS spokesman Mark Robertson attributed to increasing numbers of consumers using financial products which ‘make money whilst making a positive difference to the world.’
The EIRIS said funds were finding business opportunities in efforts to tackle issues such as ageing populations, reducing levels of obesity, global warming and global power shortages.
Taking a closer look
Last month, independent financial advisers Barchester Green published a list of those funds it considered the heroes and villains of the ethical investment industry.
Barchester exposed some dubious investment strategies for funds under the names ‘environmental opportunities’ and ‘ethical’.
Amongst those with questionable holdings was the Zurich Environmental Opportunities Pension Fund which had a 5.9 per cent holding in BP, 4.3 per cent in Rio Tinto as well as holdings in numerous companies Barchester concluded could not be considered environmental.
The Jupiter Ecology Fund was recognised as one of the best environmental funds, but the Jupiter Environmental Opportunities fund came under question for holdings in major banks to constitute the ‘income’ part of that fund.
Other funds ranked highly were the IM WHEB Sustainability Fund and Black Rock New Energy Technology, while Marks and Spencer Ethical and Scottish Widows Environmental Investor were criticised for their investment approaches.
Increasing corporate transparency
The importance of transparency in this area is increasingly important as more money is invested in headline ethical funds, to ensure investors can be confident in the investments they make.
Working to improve corporate transparency in financial markets, EIRIS presented a report at the recent 2010 United Nations Sustainable Stock Exchanges event calling for mandatory disclosure standards around environment, social and governance (ESG) issues for listed companies.
EIRIS say there is a strong business case for strengthening corporate disclosure requirements as it would provide ‘new business opportunities, and potentially increase revenues, safeguard reputation, maximise competitive advantage and mitigate operational risks.’
© Fair Investment Company Ltd