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30th October 2014
Money Marketing

Investing beyond ethical?

Last week marked the first Good Money Week, a rebrand of National Ethical Investment Week. Some people in the industry wondered if the change indicated the UK Sustainable Investment and Finance Association was dumbing down the old National Ethical Investment Week. But rather than pitching the campaign at a lower level to ensure people understand it, UKSIF says the new name is more relevant and accessible to a wider audience.

“UKSIF has a broad range of members who don’t just want to talk about a narrow, defined vision of ethical investment. It’s now about responsible investing and things like pension funds,” says UKSIF programme director and Good Money Week project manager Lisa Stonestreet.
Stonestreet says at the time of UKSIF’s first National Ethical Investment Week in 2008, “ethical investment” summed up all the environmental, social and ethical considerations around what people did with their money.

She says: “To a certain extent that is still true but people don’t necessarily mean investment funds. We found the term investment can be alienating. Some people don’t have investment portfolios and were saying ‘this isn’t for me’. But we’re also talking about people with bank accounts, Isas and pensions, not just high-net-worth investors with financial advisers.”

The other part of the problem was the term ethical.  Stonestreet says: “A lot of people have pre-ordained ideas about what ethical is and having ethical in the name of our campaign narrowed it down. It has broadened and evolved, so we are now seeing a lot more options for people. Good Money is an umbrella term to talk about what’s being done and what options there are. It’s inclusive and accessible.”

But Tilney BestInvest managing director Jason Hollands says this part of the industry regularly changes how it describes itself. What started off as ethical is also known as socially responsible; environmental, social and governance; responsible and now Good Money has been brought into the mix. “I think it is indicative of that part of the industry failing to grasp what it stands for, and that is rippling through to the complexity at product level,” he says.

Hollands points out that due to the subjective nature of investors’ beliefs, investing in these types of funds will always involve compromise for investors and grey areas for fund managers, so it is unlikely a single fund will reflect all their views. “You have to go through a lot of detail to get to what you care about,” he says.

In recent years, all kinds of companies have recognised it makes sense to be socially responsible, environmentally friendly and have high corporate governance standards, otherwise they risk damaging their share prices or profitability. This means investors do not necessarily have to hold specialist ethical or similarly named funds to do some good with their money. And if they do, there may be extra things that the financial services industry can do to benefit good causes.

Virtuo Wealth management director Scott Murray supports TAM Asset Management’s “you give, we give” scheme. Under this scheme, investors in the TAM Ethical fund can choose to donate a percentage of their annual growth from their portfolio to a charity of their choice and TAM will match this amount out of their management fee. Murray thinks the scheme has its greatest impact among smaller charities.

“If 20 clients donate to a small charity, it might only be £100 per client but £2,000 is a reasonable income for small charities,” he says.

Since 2000, global asset manager American Century Investments has donated 40 per cent of its annual profits to medical research organisations through an endowment set up by the firm’s founder Jim Stowers and his wife Virginia.

American Century Investments vice-president, international sales, Jamie Downing says: “It’s our impression that clients want to work with firms that share their values or a commitment to a cause. We believe clients want to do business with companies that not only demonstrate competence in their area of expertise but are also good corporate citizens.”

This type of business environment has also paved the way for impact and solutions-based investment. Rather than screening funds based on negative and positive criteria, these asset management firms invest in companies that are benefiting from or bringing about positive social, environmental and corporate change through solutions to problems. With a genuine business case comes the potential to make money.

EcoAlpha Asset Management founder and chief executive Matthew Fitzmaurice  says:“It’s got to the point where no one needs to choose between superior risk-adjusted returns and their values, you can do both. We own companies that are providing solutions, not the companies that are becoming more efficient as a result. This means we are part of the solution, not the problem.”

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