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Tuesday, 10 July, 2001, 16:00 GMT 17:00 UK
How ethical...How profitable?
Investors can now choose not to invest in unethical companies
If you want to save the planet but make profits, there are a growing number of ways to invest ethically
Combining a clear conscience with profit is becoming easier, given the growing number of ethical options open to investors - from "green" financial advisers to ethical funds.

Long seen as a marginal activity for those with a passion for open-toed sandals and flowing kaftans, ethical investing is beginning to enter the mainstream.

On Tuesday, the global index group FTSE, launched a green index for the first time, called FTSE4Good.

FTSE4Good has been developed with two worthy organisations - the United Nations Children's Fund (Unicef) and the Ethical Investment Research Service (EIRIS).

Already dubbed "FTSEfeelgood" within the industry, it excludes companies whose core business are either in armaments, tobacco production, gambling or nuclear power.

It is generally not true to say that ethical funds perform worse than conventional funds. We have seen some very good performance from those that are perceived to be dark green

Richard Hunter of IFA Holden Meehan
There have been other significant developments as well.

Since last year, all pension funds have been required to state whether they consider ethical, social and environmental issues when they make investment choices.

Pension fund members can obtain this information by contacting their scheme's administrator or trustees.

And since April 2001, there have been ethical stakeholder pensions. There is also a growing band of Independent Financial Advisers (IFAs) who specialise in ethical investment.

The Ethical Investment Research Service (EIRIS) has a directory of ethical IFAs. To qualify for a listing, they must either put more than 100,000 or 40% of their business into ethical funds in the last financial year.

Investors who want to chance the stock market, but with a clear conscience also have a growing number of options. There is now about 2.2bn under management in ethical funds and about 45 funds to choose from.

Stephen Hine of EIRIS says: "Organisations now recognise that people have their own personal concerns about the environment and society, and this can be reflected in how they invest."

How ethical?

Oil companies have been included within the new FTSE4Good index, which may not meet everyone's definition of ethical.

But this is not uncommon with ethical investments. Just how socially conscious a fund actually is will vary widely.

Wind farms in the United States
"Dark green funds" can invest in wind farms

While most funds will exclude firms with interests in oppressive regimes, tobacco, vivisection, nuclear power, gambling and pornography - others will include sectors such as oil, banking, pharmaceutical and chemicals.

Funds which have stringent exclusions and run by a dedicated team of researchers who are there to weed-out any polluters or pornographers, are classed as "Dark green funds".

Less than one fourth of funds on the market are dark green. Instead, there are a growing number of so-called "Light green funds". These invest in sectors that are often shunned by darker green funds.

For example, light green funds might invest in oil companies or banks.

They justify this by saying that they have demonstrated social and environmental commitments elsewhere, for example in local community projects or through charity work.

"Medium green funds" are stricter than light green funds, but these will have some exposure to oil companies, banks and pharmaceuticals.

Principle before profit?

Investing ethically does not mean putting principles before profit.

Even funds which are classed as dark green can perform well.

For example, Jupiter Environmental Opportunities is a dark green fund. Over the last five years it has grown by 68%, whereas the average growth in its sector Global Growth, which includes non-ethical funds, has only increased by 32.9%.

Scottish Widows Environmental Investors, a light green fund, has grown by 114% over the last five years. However, its sector UK All Companies, has only gone up by 54% over the same period.

Past performance is not necessarily a guide to the future, but the examples show that you can make a profit if you choose the right fund.

Richard Hunter of Holden Meehan, a leading ethical IFA says: "It is generally not true to say that ethical funds perform worse than conventional funds.

"We have seen some very good performance from those that are perceived to be dark green. This is not over one year but over a longer five year period."

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See also:

10 Jul 01 | Business
Surprise over FTSE 'ethical' index
25 Apr 01 | Business
Ethical activists step up the fight
26 Jan 01 | Business
Debating globalisation
28 Feb 01 | Business
Tobacco firm repackages itself
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