The ethical investing boom and how to take part

by Marc Shoffman from interactive investor |

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The pandemic has increased interest in green issues and what we do with our money.

Increasing numbers of investors are putting their money where their mouth is when it comes to climate change, research claims.

Ethical-focused portfolio manager Rathbone Greenbank Investments says more investors are considering backing funds with exposure to businesses that meet positive environmental, social and governance (ESG) criteria, and include sustainable issues in their activities.

Research by the fund manager found that 31% of people said the COVID-19 pandemic had increased their awareness of climate change and the local environment, and they are now taking steps to make more sustainable choices about where they spend and invest their money.

Rathbone Greenbank highlights that ethical investing has previously been associated with poor returns but adds that it is still possible to make a profit.

 According to research from consultancy PricewaterhouseCoopers, assets in sustainable investment products are expected to reach €7.6 trillion, outnumbering conventional funds, in the next five years.

People are also making changes in their daily lives, 37% have reduced their use of single-use plastic in the past twelve months and 23% are trying to buy fewer consumer products. 

In addition, when choosing products or services, 13% said they have made efforts in the last year to only buy eco-friendly brands where possible.
 
John David, head of Rathbone Greenbank Investments, says: “The past year has pushed the ’green revolution’ into fifth gear. It’s now not enough to just ‘talk the talk’, you must also ‘walk the walk’. 

“More consumers are now actively making ethical choices when they purchase products or services. Those brands making sustainable choices will therefore reap the benefits as this trend gains more momentum.”

He urged businesses, investors and governments to keep momentum going to help tackle climate change.

David Macdonald, founder of ethical-focused advisory firm The Path, which builds its own ESG portfolios for clients, says the pandemic has given investors time to reflect on their contribution to society.

He says leading figures such as David Attenborough and Greta Thunberg have made people take climate change seriously.

Macdonald adds: “ESG investing no longer connotates a trade-off with return on investment.

“Covid has revealed the resilience and stability of ESG funds. Since the start of this year, The Path’s medium risk portfolio has shown a growth rate of 5%.

“Ultimately, there is a groundswell of activity taking place and we see this as a permanent and defining shift in the Anthropocene era.”

At the end of October, interactive investor broadened its ethical ACE 30 rated list, which launched a year ago and was a UK first

With 14 new additions, the list has rebranded to ACE 40, with an expanded list now running to 42 funds, ETFs and investment trusts. Two funds from the original line up have been demoted from the list.

ACE refers to interactive investor’s three ethical styles: Avoids, Considers and Embraces (explained below). 
 
The ACE 40 list follows a similar methodology to its sister list Super 60, and is instrument agnostic, impartial, and includes actively managed and passive solutions across major markets and asset types, to suit different investor needs. However, due to the immaturity of the ethical investment sector, we have been unable so far to find 60 suitable funds.
 
ACE 40 adds an extra layer of screening to select high-quality ethical options that ii believes offer the best choices for investors across a wide variety of markets. For information on the Governance of ACE 40, see notes to editors. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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