Ethical investment has become mainstream and consumer demand is high, but why is it still so difficult to find and compare funds?
- Ethical considerations are now embedded in the investment and risk analysis of many fund groups.
- Ethical investment is increasingly important for many investors, but it remains hard to pick funds
- Platforms and statistics providers are one step behind investor demand
Ethical investing is now firmly mainstream. There are a decent number of groups with an ESG screen across all their investment funds. Ethical considerations are now embedded in the risk analysis teams of many fund groups. Not adhering to standards of corporate responsibility has become a major business risk.
It may be about to get even bigger. Under new proposals from the European Commission, all fund groups may be forced to consider environmental, social and governance issues as part of their investment process. The UK may be out of the EU by then, but it is unlikely that UK fund managers would choose to buck this trend.
Not least because ethical investment is increasingly important for many investors, not just the gently hippy-ish millennials, but also older investors who have been alerted to flaws in corporate behaviour by better dissemination of information. Investors are making the connection between atrocities around the world to the companies in which they invest; and then wondering why they are offering tacit support to areas to which they object – armaments, pornography and exploitation. The trouble is it is still fiendishly difficult to extract and compare ethical funds. None of the mainstream statistics providers have an ‘ethical’ tag to help investors search for funds appropriate to their needs. At the same time, almost none of the platforms allow investors to search for ethical funds as part of their criteria. Which is odd given all the other very sophisticated search options.
And why does the sector still adhere to these slightly weird and arcane definitions? Yes, it is important to be clear what a fund is doing, but that’s important for any fund. European funds are also very different, but they also share quite an important common characteristic. Wouldn’t ethical funds merit a similar grouping?
Of course, ethical funds might argue that they want to be treated alongside their ‘normal’ equivalent. Most would argue strongly that an ethical screen does not compromise their ability to deliver good performance. That’s a fair point, but it needs to be easier for those who want to know their money is managed ethically to pick an appropriate fund.