Time to consider socially responsible investing (SRI)?

The past decade has seen a big increase in ethical investing, although in overall terms, it is still a relatively niche market. In the middle of Good Money Week, which aims to let investors know about the range of ethical and sustainable financial options, we take a brief look at some of the statistics and issues.

Monies held in ethical funds rose from £4.5bn in 2008 to £16.7bn in 2018, according to Hargreaves Lansdown. The rate of growth can be seen by the fact that over £600m from individual investors was invested in ethical funds in the first half of 2018, according to the Investment Association. This compares with 2008, when just £180m was invested ethically over the whole year.

Another research study by Triodos Bank believes an increased focus on sustainability within the UK's investment community will see the national socially responsible investing (SRI) market reach £48bn by 2027. The trend towards sustainable investment is strongest amongst millennials and Gen-Z respondents to the survey. However, the study anticipates that over-55s will continue to be the demographic that contributes the most to the UK’s ethical investment market in every year until 2027.

This all sounds impressive, but another research study by UBS shows that UK investors currently are still among the least likely to invest sustainably, with only 20% holding sustainable investments in their portfolio - half the global average. However, things are now changing, with millennials more interested in sustainability than previous generations, so there is added momentum amongst those looking to invest sustainably.

What has been a problem for many is defining what exactly represents ethical investing. For example, we have SRI and ESG, as well as ethical, sustainable and impact investing.

Further confusion stems from what actually represents an ethical fund. Ethical funds were traditionally based on negative screening and ranged from those that fully excluded mining stocks to those that simply invested in the least environmentally harmful. Others exclude cigarette, alcohol and gambling companies alongside weapons manufacturers. The Triodos Bank study showed there were also concerns amongst investors about the ‘greenwashing’ of funds.

For many, however, the main issue has been scepticism about the ability of ethical funds to deliver a decent return. Making a profit and ‘doing good’ were seen as separate and contradictory objectives. The assumption was that corporate social responsibility (CSR) came at a cost - a less competitive business that resulted in lower investor returns. However, this is not true and a range of studies have shown companies taking environmental, social and governance risks seriously can perform as well if not better than their peers - though remember past performance is not a guide to future performance.

So it is becoming increasingly possible to invest in a way that does some good and gives you a decent return.

If you would like to review your investment portfolio so you can invest in line with your beliefs and passions, contact Kellands today.

Please be aware that the value of investments linked to the stock market and the income from them, may rise or fall depending on market conditions and that you may not always recoup your initial investment. In addition past performance should not be seen as an indication of future returns.

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