Tilney’s managing director Jason Hollands has highlighted the firm’s favourite responsible equity funds in light of the fact only 1.2 per cent of the total assets in funds for UK investors is invested in ethical funds.
The market share in ethical funds has remained static over the past decade, with just £14.4bn invested in such funds out of the £1,154bn invested by UK fund buyers.
“[This] is disappointing and perhaps mystifying given the growth in ethical consumerism in other parts of the economy,” Hollands says.
“The reasons why responsible investment has not gained more traction are likely myriad. Part of this perhaps is due to demographic reasons, as there are some indications younger people are more interested in applying environmental and ethical considerations to their economic activity – but those in a position to invest are typically more mature in age,” Hollands says.
“It is also the case that some advisers will offer responsible investments if specifically asked by a client, but not necessarily proactively enquire as to whether this is something clients would prefer. Even some providers of ethical products can be patchy in the promotion of their products.”
Hollands adds that the lack of standard criteria for ethical investments means there is confusion around what constitutes such funds.
Standard Life UK Ethical, Kames Ethical Equity, F&C Responsible Global Equity and Jupiter Ecology are Hollands’ favoured funds.
“Among these, Kames Ethical Equity provides the strictest criteria for those with red lines on animal welfare or who are vegans as it will not invest in businesses that manufacture or sell animal tested cosmetics, household products or pharmaceuticals,” Hollands says. “They also screen out producers and retailers of meat, fish and dairy products, operators of abattoirs and slaughterhouses and businesses which have any involvement in intensive farming.”
Although the retail market hasn’t yet fully embraced responsible investment funds, Hollands says the wider institutional investment industry has increasingly enagaged with companies about corporate governance, transparency and managing non-financial risks since the financial crisis thanks to corporate governance codes.
“This is a force for good as management teams need to be held to account,” Hollands says. “Companies that fail to manage their reputational impacts can seriously jeopardise shareholder value, including being subject to potential costly litigation, regulatory penalties or exclusion from government contracts. In this respect, it can be argued that responsible investment has entered the mainstream as being aware of such risks and management is simply a very sensible approach to investing.”