Half of UK investors are “ethical investors”, but not enough information is available for them to make informed decisions, research from Leeds-based TD Direct Investing has revealed.
The study, which is timed to coincide with Good Money Week (see panel), shows that 78 per cent of UK investors are more likely to invest in a company with ethical practices, and 64 per cent are planning to invest in ethical funds in the next few years.
However, 57 per cent said they need more information about the performance of these stocks before they invest and 42 per cent said they have difficulty finding out about specific shares in a fund.
John Tracy, head of TD Direct Investing Europe, said: “There is a paradigm shift in the UK, with investors wanting to know more about the performance of ethical funds, but also wanting the ethics of the business in which they invest to reflect their own. However, there remains a grey area around what ethical investing actually means and the information available to investors.
“The industry needs to be clearer about the definition of ethical investing and the funds themselves should provide more detailed information about their investments. It is clear that investors want to be able to make their own informed, educated decisions about which ethical investments they choose.”
But Lisa Stonestreet, programme director at the UK Sustainable Investment and Finance Association (UKSIF), said investing ethically was about taking environmental and social considerations into account alongside financial ones.
“Endless conversations about ethics are a little frustrating at times. It’s basically up to individuals to decide what’s ethical and what’s not,” she said.
“There’s more information available than there used to be – for example online – and we do encourage transparency, but it can be difficult looking at each of the companies in a fund. But if the fund’s criteria match your ethical considerations, it should be OK, otherwise there would be repercussions from the Financial Conduct Authority. It should do what it says on the tin, basically.”
Like the Rockefellers, who last month announced they were divesting their interests from fossil fuels due to climate change concerns, the UK’s ethical investors are actively avoiding certain sectors.
According to the research by TD Direct Investments, which is part of the Toronto-based TD Bank Group, more than a quarter (29 per cent) have avoided controversial industries such as tobacco and gambling, 21 per cent have chosen to invest in stocks seen to have a positive impact on society, and 15 per cent have chosen not to invest in companies seen to have negative societal effects.
Despite the increased popularity of ethical investments, the research also found that half of UK investors accept that there may be a financial cost to investing in ethical funds, with two in five believing their ethical investments result in lower returns. However, despite this, respondents said they were still keen to push ahead, even if it meant taking a perceived financial “hit” from investing in an ethical company.
Yet according to Ms Stonestreet, other studies show that ethical investments do not necessarily perform worse, and she cited research from Eurosif (European Sustainable Investment Forum). Its sixth Sustainable and Responsible Investment Study, published earlier this month, revealed that responsible investment strategies grew faster than the broad European investment market between 2011 and 2013. Growth rates ranged from +22.6 per cent to +132 per cent.
“Companies that don’t manage the consequences of environmental mismanagement, for example, will suffer financially – such as BP, which was fined heavily following the Deepwater Horizon disaster – and consequently not perform as well as expected,” she said.