Global banking crisis prompts big jump in ethical investment
The crisis in global banking has sparked a big increase in consumer interest in investing ethically.
That, at least, seems the obvious conclusion to be drawn from a jump in the amount of money invested ethically in the last year despite the most severe recession in a lifetime. Across the UK, sales of ethical products in the most recent quarter reached £59m — compared to just £21m in the same period last year.
And the number of ethical funds operating within Europe also increased — from 537 at the beginning of the year to 683 now.
The factors driving this growth are probably two-fold. There is a lack of confidence in products offered by the large banks — especially those banks that had to be rescued by their governments.
The holding of the high-profile Copenhagen summit next month underlines the need for society to move to a lower climate economy.
Despite the well-publicised comments of Northern Ireland finance minister Sammy Wilson denying the human contribution to global warming, there is a strong majority of climate scientists and government leaders accepting the need to cut carbon emissions.
Investments that tap into the demand for reducing carbon emissions both satisfy ethical concerns and offer the opportunity for strong financial returns.
Demand for renewable energy sources and energy saving measures in the home and workplace are likely to grow strongly in the coming decades.
Penny Shepherd, chief executive of the UK's Sustainable Investment and Finance Association (UKSIF) says: “According to research for (last week's) National Ethical Investment Week, nearly half of the British public believes that companies that will thrive in the future will be those who look to the long-term and behave ethically, protecting society and the environment while a mere 3% strongly disagree with this.
And people in Northern Ireland are right in line with the national average.
“Money has flowed into green and ethical banks like the Co-operative Bank and Triodos Bank following the financial crisis.
“People are putting their money where their mouths are in their banking choices.”
The Co-operative Bank — which has two branches in Northern Ireland (one branded as Britannia) — has particularly benefited from the global crisis. Its current account business grew by 68% in the last year. Research just published by the Co-operative suggests there is further growth to come in the ethical market place.
It found that as many as 65% of investors opt for ethical products once they have had the opportunities explained to them. This compares to the mere 2% share of the total market currently met by ethical investments.
Commercial opportunities are clearly one of the drivers for the majority of people who would invest ethically but at present do not. The greatest interest was shown in products that would address the looming energy shortfall followed by those that respond to the challenge of climate change and others that deal with the technological potential that now exists.
Zack Hocking, head of investments at Co-operative Investments, says: “The study confirms that sustainable investment is attractive to a majority of investors providing they understand the remit and the opportunities. It also clearly shows the important role the advice industry has to play in promoting sustainable investments to all consumers and not just those of an ethical persuasion.
“The world is changing and issues targeted by sustainable investment such as the need to tackle ageing populations, global power shortage and climate change are creating attractive business opportunities which, in turn, are creating great investment opportunities consumers can take advantage of.”
Friends Provident was one of the first financial providers to recognise the latent demand in the ethical market place launching ethical investment products 25 years ago. A survey conducted for Friends reinforced the findings from the Co-op's survey with 70% of those interviewed saying they expect financial advisers to offer ethical investment options and some 74% saying they believe that companies should take social, ethical and environmental concerns seriously.
Trevor Matthews, chief executive of Friends Provident, says that consumers are becoming much more aware of commercial ethics.
“We are seeing this trend continue into people's investing habits and surprisingly over half are prepared to take a lower return on their investments if it means investing in companies that are socially responsible,” he says.
“Our research tallies with recent figures from the Investment Management Association and shows investors view ethical funds as a long-term investment and it is encouraging to note the sector as a whole has seen 14 months of positive inflow in spite of recent financial turmoil.”
Yet despite the national and European trends towards growth in ethical investments, this may not yet be translating into investment decisions locally.
Steve Laird, a certified financial planner at Carrington Wealth Management in Belfast, says: “In recent months people have been looking at alternative investments in general. Anything with a green/ethical bent is part of that. But I would not say we are doing much more on it now than, say, two years ago.”