While some dismissed ‘going green’ and fair trade as passing trends, they have quickly gained momentum, making socially responsible investment (SRI) of significant importance to the forward-thinking investor.
Previously seen as something of a sideline offered as a way to ‘tick the box’ in a range of offerings, investors are now demanding to know the ethical credentials of the products they are using, which in turn is putting pressure on investment companies to come up with better and wider ethical and socially-responsible options for their clients.
These can be defined as anything from a bank account which promises not to use its funds in order to invest in certain classes of product at a corporate level, to clients buying directly into projects which have a proven ethical, environmental or socially-responsible element.
Carbon offsetting is one of the most popular forms of SRI. In the offsetting business, companies wishing to become carbon neutral pay to outsource emission reduction because it is more cost effective or technologically feasible than at home.
But there are also many other SRI opportunities across the globe – from forestry investments in Brazil that aim to eradicate illegal logging in environmentally-sensitive areas, to bonds that invest in bamboo plantations in Central America.
Rise of ethical investing
Just how much the ethical investment market has evolved in recent years is reflected in research from YouGov, released as part of this year’s National Ethical Investment Week.
The results found that 42% of British adults with investments want to ‘make money and make a difference’, with a third (34%) wanting at least 25% of their investments to include green and ethical considerations, and a further 10% wanting to ‘dip their toe in the water’ by including green and ethical considerations in a smaller proportion of their investments.
And according to EIRIS, the non-profit sustainable investment research firm, the amount of money invested in Britain’s green and ethical retail funds recently reached a record height of £11.3bn. Moreover, in the past decade, the number of ethical investors has tripled, from 250,000 to three-quarters of a million.
Over the past eighteen months, there has been significant growth in so-called ‘ordinary’ investors who are finding that SRI fits their requirements from both an investment and an ethical point of view. And there is no doubt that the financial crisis has led to increased awareness of how financial services providers use customers’ money.
People who may previously have invested in property or dabbled in the stock market are looking for something different. But while they are more conscious of the environmental and social impact their choices could make, they are by no means prepared to sacrifice good investment sense to buy into such products.
So, would SRI be growing as quickly as it is, had the economic downturn not hit? It is impossible to take the effects of the global recession away, but a combination of a natural shift in attitudes and sound investment sense has pushed SRI into the spotlight. There was already a shift away from the culture of ‘profit for profit’s sake’ when the collapse hit. SRI typically involves investment in the few industries which have managed to remain in positive growth through the global recession.
And since people have lost trust and confidence in the more traditional investment models, the returns demonstrated by SRI products, combined with their social, environmental and ethical benefits, make for a compelling investment case.
Robert Hague is the sales director at Emerald Knight.