UK green and ethical investment hits record £11.3Bn high

Figures released today by EIRIS show that the amount of money invested in Britain's green and ethical retail funds (i.e. those funds open to the general public) has reached a record high of £11.3Bn.

Launched in the run up to the UK's third National Ethical Investment Week (16 -22 October 2011), the latest figure of £11.3 billion* represents over three quarters of a million investors in green and ethical funds, up from around 250,000 investors in 2001 when £4 billion was invested ethically in the UK. Statistics from the Investment Management Association show that gross retail sales into UK Ethical funds were up by 25% in quarter two of 2011 compared with the same quarter in 2010.

Growing demand
Increased interest in ethical finance is backed up by the findings of EIRIS' latest Ipsos MORI national consumer survey which explores consumer attitudes to ethical finance in Great Britain. The poll surveyed 1,030 adults and finds that 38% of the British public with a financial product or service are interested in green or ethical financial products and services with more women than men (41% versus 34%) expressing an interest. Of those interested, 90% said they would be likely to switch to a different provider if it offered green or ethical investment products.

The poll also explores the extent to which consumers feel that many of the sustainability themes which green and ethical investment funds seek to address will impact upon the global economy. When asked 'What impact, if any, do you think each of the following will have on the global economy in the next 10 years':

• 61% of respondents said natural resource scarcity will have a negative impact on the global economy; 
• 59% said growing population will have a negative impact; 
• 57% said availability of global food supplies will have a negative impact; 
• 56% said environmental damage will have a negative impact; 
• 56% said ageing population will have a negative impact; 
• 52% said water scarcity will have a negative impact; 
• 49% said climate change will have a negative impact, and 
• 46% said reduction in biodiversity will have a negative impact on the global economy.

Viva la difference?
Last week EIRIS also ran a national opinion poll survey with Ipsos MORI to mark National Ethical Investment Week in France. The survey found that 60% of the French public said they attach either 'great importance' or 'some importance' to incorporating environmental, social and ethical issues when selecting financial products. Click here for further details.

The last 10 years has seen a huge increase in the amount of money being invested ethically and this has gone hand-in-hand with the interest in ethical consumerism in general. EIRIS' survey shows that expectations around ethical finance are evolving. The public now agree that big issues like climate change, dwindling natural resources and population growth will have a negative impact on the global economy.

Since the credit-crunch, people are better informed about the impacts that their spending and investments can have, both positive and negative, and more of us are turning to ethical investment which takes a longer-term approach. By avoiding companies with a negative impact, or focusing investment on those providing positive products and services tackling key sustainability challenges, green and ethical funds offer the opportunity to both make money whilst tackling global problems.

Mark Robertson

Water must be at the core of ESG investment strategies

Without doubt the world’s most essential commodity is water. But despite its critical importance to life on earth, water is taken for granted and the impending issue of water scarcity remains largely invisible and neglected. However, leading experts are in agreement that water scarcity is set to become the foremost global environmental challenge of our generation. If water is of interest to you as a consumer, you might want to think more about whether the companies that make the products you buy take it into account. 

In the past, water has been taken for granted and its material and financial value remains poorly understood by the majority of companies and investors alike. This is mirrored in EIRIS’ recent study ‘A drought in your portfolio: are global companies responding to water scarcity?' which shows that less than 1% of companies exposed to water risks are adequately managing them. In contrast, UN Secretary General Ban Ki-moon has stated ‘Water stress threatens global economic growth’ and is an issue ‘as critical as climate change’.

As pressures on water supplies increase across the world companies will face increasing declines and disruptions to their water supplies. This will undermine the productivity and profit margins of operations as well as of suppliers. Under the predicted 40 per cent supply-demand gap there will not be enough water to grow the food needed to sustain population growth or to provide raw materials such as cotton or timber. The world could face annual losses of grain production equivalent to the entire grain crops of India and the US combined by 2025.

Water is also key to energy production. In 2003, France was forced to shut down 58 nuclear power stations responsible for supplying 75 per cent of the nation’s energy because of severe water shortages.

According to the World Economic Forum, 1.1bn people live without clean drinking water and 1.8m people die every year from inadequate sanitation. Companies that use water irresponsibly or pollute water sources will therefore increasingly come under attack from the public and civil society.

The physical and reputational pressures of water scarcity and water pollution will result in tougher regulation to protect water quality and caps on how much water businesses can withdraw, potentially limiting licences to operate. Water scarcity will also increase water prices.

Taking these risks into account, it is worrying that EIRIS analysis shows that less than 1% of companies are adequately managing their water risks.  However, further analysis reveals more promise: 36% of companies have acknowledged water as an issue to be addressed; 22% demonstrate they monitor water consumption in relation to disclosure; 9.7% have set either short-term or long-term consumption targets and 9.7% have set water quality targets.

In comparison to climate change, companies have had five to ten years to understand and evolve their strategies. We are now seeing a handful of innovators within each sector beginning to get to grips with water scarcity, assessing their risks and beginning to plan for how they will mitigate these. However, the vast majority of companies – 94% – remain unaware of the issue or have not gone beyond the basic first step of acknowledging water is an issue to be addressed.

Investors should therefore seek a better understanding of potential water-related exposure in their portfolios by demanding more corporate water disclosure, encouraging companies to incorporate water issues into their environmental strategies and emphasising the opportunities of better water management.

- Randeep Sanghera

Some ethics with you ISA?

ISA season is upon us again and with the April 5 deadline for using this year's tax free saving allowance fast approaching, banks are as eager as ever to get their hands on this last-minute cash.

But as we search around for last minute ISA deals, how many of us stop to think about the impacts our investments are having on the world around us? How many of us are, unwittingly, investing our ISAs in the arms industry, in needless polluters, oppressive regimes or other companies whose objectives are at odds with our own?

The answer is the vast majority of us, though this needn't be the case. The options for investing your ISA are multiplying all the time; and this needn’t mean sacrificing financial performance. There are now around 90 ethical funds available – the majority of which come with an ISA wrapper.

The old adage that investors have to "pay" to go ethical in terms of poorer financial performance no longer holds true. Over the last few years some ethical funds have outperfromed their non-ethical peers.

But what kind of companies do green and ethical ISAs invest in? This depends on the ISA’s ethical policy. Some may aggressively screen out heavy polluters, arms companies and animal testers. While others take a ‘best of sector’ approach and may invest in the oil and gas sector but will actively seek out companies that have a better record on the environment and human rights than others in their sector. This can include investment in dynamic green technologies, such as renewable energy, which have the potential to tackle huge global issues such as climate change whilst generating a very healthy. Additionally, some funds may also seek to improve the social and environmental performance of companies through a process of proactive engagement

EIRIS’ YourEthicalMoney.org webiste has a full list of all the various green and ethical ISA options available.

So, when choosing your ISA this year, think not only of the potential financial reward, but of the social, environmental and ethical return.

- Mark Robertson

Cool Brands versus Hot Brands? Top brands failing on climate change

Two-thirds of the world's top 100 brands are failing on climate change, according to latest research from responsible investment research firm EIRIS.

The report Cool Brands versus Hot Brands? focuses on the world's leading 100 brands, as identified by Interbrand1, and finds that 69% of those with a high climate change impact lack adequate policies, management systems and reporting on climate change.

Companies risk eroding brand value by failing to respond to the climate change concerns and expectations of customers, investors, NGOs and other key stakeholder groups. EIRIS' analysis reveals surprising differences in the way efforts to tackle climate change are embedded within a company's culture. Research parameters include product impacts, long-term targets, executive remuneration and disclosure.

Leader of the pack?

Gillette (ranked 3rd in Interbrand's top 100) achieved the highest overall climate change rating in EIRIS' analysis. The brand has established long-term targets on emissions reduction and displayed strong reporting against those targets.

Porsche, on the other hand, (ranked 72nd in Interbrand's top 100) achieved one of the lowest climate change scores in EIRIS' climate change analysis. This contrasts with other leading brands in the automobile and parts sector such as Toyota.

Apple vs Dell

Big differences exist in the extent to which leading technology brands are tackling climate change. Dell (Interband rank 42) has linked executive remuneration to climate change performance, established both long and short-term targets and has improved product-related climate change emissions.

However, Apple (Interbrand rank 17) has failed to implement any of these measures. On the other hand, Apple has shown an improvement in reducing its GHG emissions whilst Dell's GHG gas emissions have increased. However, it should be noted that other factors such as new business acquisitions, fluctuations in turnover, etc, can account for increases/decreases in GHG emissions.

Pepsi challenged?

Coca-Cola is at the top of the Interbrand 100 list, while PepsiCo is positioned at number 23. However, when looking at their relative responses to climate change a different picture emerges. While Coca-Cola has an assessment of 'intermediate', with a number of unidentified or unmanaged risks, PepsiCo scores 'good' according to EIRIS' methodology. Unlike Coca-cola, PepsiCo is therefore considered to have adequately managed its climate change risks.

Cool Brands versus Hot Brands? forms part of a EIRIS' wider annual climate change tracker report which analyses the performance of the world's biggest 300 companies in tackling climate change. This year's analysis of the world's 300 largest companies finds that:

• 33% of companies have a significant climate change impact. Of this 33%, only 27% are adequately managing the climate change risks they face. In 2008, only 16% adequately managed climate change risks

• 60% have now established short-term targets (48% in 2008), but only 46% have set long-term targets (25% in 2008), leaving significant room for improvement

• In 2010, 31% of significant impact companies linked executive remuneration to carbon emissions, up from 14% in 2008

The potential reputational damage to brand value associated with a failure to respond to the risks from climate change can have a direct impact on a company's profitability. A lack of mitigation measures can also lead to the loss of business productivity and business interruption.

In the face of increased regulation, growing consumer expectations and greater investor awareness, climate change and other sustainability issues will become increasingly important factors in the determination of brand value. Investors in top brands need to consider the extent to which companies are safeguarding their brands by addressing both current and future climate change risks.

Mark Robertson

What’s the future for investment in sustainable business?

You might think that governments and companies, under acute financial pressure and still recovering from a grim recession, would be quietly burying their commitments to sustainable business practices.

In fact, they're doing the reverse. Over the last few years major economies including the US, UK, China and Korea have announced detailed stimulus packages to support sustainable businesses as part of their recovery plans. In the UK the coalition government has announced plans for a green investment bank to support renewable energy businesses, (though these plans might be scaled back somewhat and replaced by an investment fund). Not only would this help to bridge short-term funding gaps of green technologies which might arise from the economic downturn, it would also pave the way for longer-term sustainable growth.

Climate change is financially significant to all companies. It presents a systemic risk: the threats posed to the economy and the financial impact of not addressing climate change are significant, as explained in the Stern Review. Increasingly, business are recognising that a long-term commitment is needed to address climate and other critical sustainability issues. Major companies such as M&S and Wallmart continue to invest in sustainability initiatives as they recognize the significant efficiencies to be gained in doing so.

Mandatory carbon reporting, the increased roll-out of emissions trading (once the EU's security issues are resolved) and a growing recognition amongst US policy makers that America needs to reduce its reliance on foreign imported oil without relying on existing stocks of polluting coal means will further boost demand for renewable energy, increase energy efficiency and encourage other industries to adopt more sustainable business practices.

It’s likely that governments, companies and investors will continue to provide the long-term support that’s needed to build a more sustainable global economy. This will continue to create opportunities for investors to both make money and make a difference by supporting businesses involved technologies.

- Mark Robertson

Failing to invest ethically creates big risks for charities

The UK public expect charities to hold true to their ethical values when making investments, according to new research.

At a time when UK charities face a particularly tough funding environment, What Is The UK Public's Opinion of Charitable Investments? by the EIRIS Foundation and the Holly Hill Charitable Trust, set out to gauge current opinion regarding charitable investments.

The survey found that 78% of the UK public would think worse of a charity if they found out it had invested funds in activities that ran contrary to its specific work and values.

Mark Robertson, head of communications at EIRIS, said: "Our survey provides clear evidence that the British public expect charities to be fully transparent and to think more about the environmental and social impacts that their investments have."

Charities are under increasing pressure to be accountable and transparent in all that they do. In 2011 UK registered charities held nearly £78 billion in investments.

The survey results show that the public are as keen as ever to see charities make investments that match or stand up to their charitable aims. Three out of four respondents (74%) agreed that large charities should adopt ethical investment policies and four out of five (84%) felt charities should be fully transparent about their investments.

Charities that fail to invest ethically therefore run the risk of alienating supporters which, in turn, could result in a reduction in donations. This is something few charities can afford to do, particularly when figures published following last year's comprehensive spending review by the Association of Chief Executives of Voluntary Organisations (Acevo) suggested that charities could face a reduction of up to a £4.5 billion in funding as Government cuts continue to take effect.

The majority of those surveyed (87%) either donated to charities and/or worked for a charity, and of these 89% were not familiar with the investments or investment policies of the charities they worked for/donated to.

The survey coincides with the Charity Commission consultation on investment guidance for trustees, and others who make decisions on behalf of trustees, about a charity's investments. The proposed revised version of Charities and Investment Matters (CC14) explains the legal framework for how ethical investment, mission connected investment and programme related investment can sit alongside standard investment approaches.

Robertson added: "The multiple benefits of ethical investment are well documented. Our survey results, coupled with the Charity Commission's new draft investment guidance, are perhaps the strongest signals yet that charities could be missing a trick by not broadening their investment strategy by linking investment activity directly with charitable aims."

A survey published last year, by the Charity Finance Director's Group and the EIRIS Foundation, found that 60% of charities with investments over £1 million had an ethical investment policy, and 32% of those that that did not currently invest ethically were planning to discuss the issue in the coming year.

Mark Robertson

Public want banks to lend ethically, survey finds

73% of the British public think that banks should have ethical lending policies in place to prevent them from investing in, or lending to, companies involved in controversial areas such as arms manufacturing, or companies with poor records on the environment and human rights, according to new research released today.

The national online consumer survey, conducted by Ipsos MORI on behalf of EIRIS, explores current consumer attitudes to green and ethical finance. The survey launched as EIRIS figures show that the amount of money invested ethically in the UK has risen 289% over the last decade.

The survey identifies clear evidence of the need for change in all investment and lending practices. 66% of the survey respondents think that banks and other financial institutions have not learnt the lessons needed to prevent a future financial crisis but instead have reverted to 'business as usual'.

In the wake of the BP oil spill, many consumers recognise the impact that green and ethical issues can have on a company's bottom line. 82% of the British public think that it is important for financial product providers to pay more attention to environmental, social and governance risks when deciding which companies to invest in or lend money to, as part of ensuring a good financial return.

Survey respondents were presented with a list of ways that banks or financial institutions could offer more to their customers. Ranked most highly was the disclosure of information on how and where banks lend to or invest their money, with 77% thinking that banks or financial services providers should have this.

Other key findings

When asked what might encourage them to switch to an ethical financial product or service:

- 38% would be more likely to change if more information was available on the high street about ethical/green products
- 43% said they would be more likely to switch to an ethical financial product if its green and ethical credentials were externally verified so that it was easier to trust the claims made
- 41% would be more likely to change if a greater choice of ethical/green products was available
- 37% would be more likely to change if there was more information available on how green/ethical products make a difference in the world

Mark Robertson, Head of Communications at EIRIS said "It's clear that there's a lot more that financial institutions can do to build trust and persuade us that they have switched away from short-term, unsustainable investing and lending practices. Our survey shows that there's a huge appetite for a more intelligent approach to finance which places a greater emphasis on society and environment as part of a path towards a more sustainable financial future".

In order to assist people looking for ethical financial products, EIRIS has launched http://www.yourethicalmoney.org/ - the UK's first consumer website dedicated to providing free, independent and unbiased information on all aspects of ethical finance.

The survey is launched to mark the UK's third National Ethical Investment Week which aims to raise the profile of green and ethical investment in the UK.

- Mark Robertson

Can the finance sector restore its reputation?

Not if you believe Steve Cummins, Chief Executive of TheCityUK, the body focussing on promoting and developing the UK finance sector who spoke at the UKSIF Annual Lecture last week.

In presenting the case for maintaining the UK's role as a key centre for sustainable and responsible finance, he made a particularly interesting claim that once you have lost public trust and confidence you cannot recover or restore the same trust and confidence. Instead you have to find a new basis on which to gain fresh trust and confidence.

If that is true, it means that the path to the rehabilitation of the finance sector needs to be a new one. One, perhaps, in which financial firms position themselves as the eyes and ears of investors looking for, and dealing with, forthcoming problems in the marketplace: protecting the interests of all rather than simply seeking to avoid disaster themselves (with mixed success) and trying to stay one step ahead of the regulators.

That would mean seriously addressing issues like climate change and biodiversity and ways in which globalisation could fail to benefit everyone, each of which themes contain the seeds of mass value destruction for the world's investors if not properly addressed.

It might also involve asking what culture and leadership is appropriate for a finance sector playing its part in long term sustainable wealth creation for the benefit of society as a whole.
All of this adds up the kind of new approach that might indeed generate fresh public esteem for the finance sector and all who work in it.

And while may all of this may sound like something of a challenge the significance of Steve Cumming’s remark is that anything less than a radical break with the past might simply not do the trick in rebuilding trust and confidence.

So if TheCityUK is willing to set out on such a radical new approach it will be down to its backers (who include many of the big names in UK finance) to rise to the challenge and to make good use of all that UKSIF and others can bring to that journey.

A transcript of Steve Cummins speech is available here

- Peter Webster

Britain investing more money ethically than ever before

EIRIS has today released new figures which show that the amount of ethical investment in the UK has reached an all time high of £9.5 billion.

The £9.5 billion represents approximately three quarters of a million investors in ethical funds, up from around 200,000 investors in 1999 when around £2.4 billion was invested ethically in the UK.

The world is changing fast and many of the issues targeted by green and ethical investment funds such as the need to tackle ageing populations, reduce levels of obesity, address the global power shortage, tackle water scarcity and climate change are creating attractive business opportunities, which in turn can create great investment opportunities which green minded investors can take advantage of.

2010 is a critical year for rebuilding public trust in UK financial institutions. It is encouraging that increasing numbers of consumers are turning to those financial institutions which offer financial products that make money whilst making a positive difference to the world.
The signs are that growing consumer interest in issues like climate change, human rights, fairtrade and poverty is set to drive demand for green and ethical investment and will hopefully encourage more of us to think about how we can make a positive difference with our money throughout the rest of 2010 and beyond.

- Mark Robertson

ConocoPhillips and ExxonMobil next to be questioned on oil sands risk

Following on from BP's annual general meeting last week at which 15% of the share register withheld support from management over an investor campaign for better information on economic and environmental risks associated with BP’s tar sands project in Canada, American and British investors are now questioning additional oil companies on their investments in Canadian oil sands.

Over 6% of BP shareholders voted in favour of a resolution – co-ordinated by campaign group FairPensions UK - for further disclosure on carbon and oil price assumptions at the company's planned $2.8bn Sunrise SAGD development, a 50/50 venture with Canada’s Husky Energy. A further 9.2% of shareholders abstained from voting – which is generally seen as a warning sign of disgruntlement with the company’s approach.

Investors from both sides of the Atlantic have now filed resolutions for ConocoPhillips and ExxonMobil's annual general meetings – in addition to those already filed for BP and Shell - which ask the companies to report on the financial, environmental and social risks associated with their oil sands investments.

FairPensions UK, the California State Teachers Retirement Fund (CalSTRS), and Boston-based Green Century Capital Management (Green Century) are amongst those coordinating the shareholders' efforts.

The campaign continues to attract international support from NGOs, faith groups, politicians and celebrities, including Radiohead's Thom Yorke. Institutional investors associated with the United Nation's Principles for Responsible Investment (PRI), such as Boston Common Asset Management, Calvert Asset Management Co., Inc., Co-Operative Asset Management, Ethos Foundation, Unison Staff Pension Scheme, and Walden Asset Management, have expressed public support for BP's and Shell's oil sands resolutions.


Click here for more information on the FairPensions Tar Sands Campaign.

Mark Robertson