Despite years of bad reputation and biased judgement, nowadays green funds are positively growing and achieving high returns. Its bad reputation was due to the stakeholders and investors that moved such market, which comprehensively included tobacco stocks and banks. People had to choose between making a decent return or being ethically conscious.
However, recent data affirms that nowadays of the 25 best performing British funds, three are ethical. Such rapid growth and higher attention to ethics is positively accepted by consumers.
Michelle McGrade, chief investment officer at TD Direct Investing, says:
“In the past the people running firms trying to make the world a better place tended to wear socks and sandals, and had beards. But now these people are businessmen, meaning firms and investors are making more money.”
But first of all, what are ethical funds?
They were introduced in 1980s, to promote religious organizations and communities to operate in the market without being involved in “sinful” operations such as tobacco, pornography and weapons without their consent or knowledge.
Such philosophy is not always applied, still investors focus themselves on non-ethical stocks, for a market of 989£ billion invested, compared to the very small 11£billions of the ethical stocks. The main reason behind un-ethical choices is mostly economic: investors believe that returns will be lower if they don’t operate in multi-national enterprises with lower margins of risk.
Ethical funds involve businesses that have good environmental, social and governance policies, such as urban development.
Another slowing aspect is screening: companies are constantly monitored, and investors decide which one to invest on, and those that must be avoided. As a consequence, what is ethical depends on what clients believe belongs to the concept of “ethic” itself and, inevitably, leads ethic funds to a much longer process of screening which often becomes an obstacle for investors due to longer processes and responsibilities.
“Not having big firms in your fund can hurt you if the banks and oil companies are doing well, but it can also help you if they aren’t.”
“These figures go to show you can make good money in ethical funds.”
Despite possible disadvantages and bottlenecks of ethical funds, these are positively growing and achieving bigger results. As people starts to become ethical-friendly, the evolution of market will move along with it and delete progressively all those parts of economy that despite giving big returns, endanger the planet.