Articles - Ethical & responsible investment: entering the mainstream


The global financial crisis coupled with irresponsible banking, has increased the belief that capitalism is faltering, and needs to be re-defined according to values. Surveys regularly suggest trust in business is low and a challenge to rebuild. In this environment, financial products or institutions that offer a distinctive, values led offer appear attractive.

 By Neville White, Head of SRI Policy & Research at Ecclesiastical Investment
  
 At Ecclesiastical Investment Management where our USP is ‘profits with principles’ inflows have held up well throughout the turmoil of the past seven years, with strong, continuing interest from clients and potential clients in our responsible investment Funds. Clients are increasingly interested in how they make their money, not just how much they will make from their investments.
  
 The origins of ethical/socially responsible investing (SRI) can be traced back to the turn of the last century when faith based groups like the Quakers and the Methodists began to invest in the stock market by consciously avoiding companies involved in alcohol, gambling, tobacco and weapons. As the twentieth century progressed, more churches, charities and individuals began to make investments based on ‘ethical criteria’ – literally applying a moral dimension to their investment decisions. The last three decades have been transformative for the sector and for the contribution it is making in addressing some of the world’s most intractable problems such as climate change and labour exploitation.
  
 From the launch of the first ethical retail fund in the UK in 1984, the retail ethical sector has grown to be worth £13.5bn by June 2014, based on 85 dedicated responsible and ethically screened products that meet every shade of need from traditional negative screening to green tech themed funds. Whilst the retail ethical sector is healthy and growing, it is in the institutional space that the concept has really developed.
  
 According to Eurosif, the European Social Investment Forum representing European social investment, the UK is now Europe’s largest sustainable and responsible investment market where some form of engagement and voting is undertaken by assets worth £1.4trillion (2013). Exclusion type approaches account for an estimated £394bn of assets under management. Regulatory consensus has helped; changes in pensions and charity law have made it easier, and more desirable to develop thinking around responsible investment approaches. While the UK Stewardship Code, promoted by the Financial Reporting Council has been adopted by over 200 fund managers and nearly 80 asset owners. Moreover, the UK is a leader in product innovation, creating products and approaches that broaden the market and meet new demands such as impact or social investment. The latter, is supported by Government and is expected to begin to develop significantly in ways that deliver measurable financial and social returns. Ecclesiastical is excited at the growing range of opportunities in the social investment space - particularly in the Fixed Interest arena - and has taken positions in several offerings that meet our investment and sustainable criteria.
  
 UK investors have become an important catalyst for change such as in pioneering the UN Principles of Responsible Investment with over 180 UK asset owners and managers as signatories or the Carbon Disclosure Project, attracting 785 global institutional investor signatories with combined assets of US$92 trillion to become the premier tool for managing and reporting climate change risk and impact.
  
 At Ecclesiastical our four screened retail Amity Funds take an integrated approach, applying negative and positive screening, engaging with business for change and taking an active voting position in keeping with our support of the UK Stewardship Code. We take a progressive line on executive remuneration, voting to oppose two thirds of FTSE100 remuneration policies and reports in 2014 as being excessive or insufficiently challenging in terms of performance. Clients are strongly supportive of this approach that delivers ‘profit with principles’ across our active asset classes (International, European, UK equities and Sterling Bond Funds). Communicating our values driven thinking via tri-annual themed research (Amity Insights), regular expert briefings and quarterly activity reports has delivered for Ecclesiastical the prestigious MoneyFacts award for Best Ethical Investment Provider six years in succession (2009-2014).
  
 We strongly believe that responsible investment adds value for clients and business alike; for clients, integrating ethical and responsible investment means we take a holistic view of a company that appraises risk in the round. For companies our ability to engage legitimately on key environmental, social and governance issues means we believe standards can be raised over time, thereby reducing material risk.
  
 The world is changing; as the gathering pace of the global fossil fuel divestment campaign shows, it is clear that shareholders are playing a larger, more visible role in managing their interests in the oversight of companies and business behaviour. Responsible investment powerfully and consistently does this; whilst the future of capitalism is up for debate, part of the conclusion, we believe will be the greater adoption of shareholder advocacy and intervention where responsible investment has already led the way.
  

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