Are there more ways to invest ethically? – FT Adviser

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If the volume of press releases from fund groups and asset managers is any indication, then it seems as though there are now more ways to invest ethically, responsibly and sustainably than ever before.

Whether it’s an equity fund investing only in companies that measure their impact on the environment, a green bond or a fund tracking an ethical index, it appears investors are spoilt for choice.

Ryan Smith, head of ESG at Kames Capital, believes there has never been such a broad range of sustainable investing options.

He cites a greater number of companies for funds to invest in, either “new companies with a sustainability focus or established players transitioning their business to a more sustainable approach”.

“Previously, if you wanted to invest ethically/sustainably, there were fewer options – the opportunity set for those funds was less (or more narrowly defined) and performance might not have been compelling,” he reasons. 

He observes new funds have “tended towards an impact investing message, demonstrating the social or environmental benefits of their strategies”.

Incorporating values

Amanda Young, head of responsible investment at Aberdeen Standard Investments, observes there is a larger number of both active and passive products which cater to the growing demand for different sustainability concerns.

“Specifically, at a product level, new products continue to be launched that incorporate values into their construction. These include traditional ethically screened funds that avoid investing in companies in so-called ‘sin’ sectors, such as defence or tobacco,” she explains.  

“Some funds take a thematic approach to sustainability issues, such as climate funds or water funds. In addition, fund choices reflect personal religious values with various Christian or Sharia-based funds available to the consumer. 

“More recently, the social impact investment market has grown which allows investors to direct their capital into social enterprises that will achieve both a financial and social return,” notes Ms Young.

Darius McDermott, managing director at Chelsea Financial Services, offers an example – the Alquity range of funds which don’t invest ethically but instead reinvest in the regions in which they invest, helping small businesses by using some of its annual management fees to fund loans.

Proof is in the performance

More evidence that investing sustainably can generate alpha has also encouraged investment firms to enter the fray.

According to research by Moneyfacts, over the past year, ethical funds have “had the edge over” their traditional counterparts, posting an average growth of 16.8 per cent, compared with 15.2 per cent from the average non-ethical fund. 

This outperformance holds up over the longer term too, as over three years, the average ethical fund delivered a 30.4 per cent return, eclipsing the average non-ethical fund which returned 29.1 per cent, Moneyfacts notes.

As Richard Eagling, head of pensions and investments at moneyfacts.co.uk, suggests: “With every passing year, the traditional view that investing ethically entails sacrificing profits looks increasingly outdated. 

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