A new report reveals sustainable funds that make a difference and those that fail to be socially responsible.
Investing for a positive impact on society as well as to generate a return continues to grow in popularity, but simply having ‘ethical’ or ‘sustainable’ in its name does not make a fund so.
A new report from Triodos Bank finds that two thirds of investors would like their money to support companies which are profitable and at the same time make a positive contribution to society and the environment.
The easiest way to make such investments is to use an ethical or SRI fund; the UK’s ethical and environmental funds were valued £1.5 trillion in 2016, according to ethical financial adviser Castlefield.
But it is important to test whether funds are actually as sustainable or ethical as they claim to be. For this purpose, Castlefield published a ‘winners’ and ‘spinners’ report to identify funds that really are sustainable and those that aren’t.
Winners are those funds which demonstrate transparency, whilst making a significant contribution towards the growth of the responsible investment market.
1. WHEB Sustainability fund
Castlefield praises its good performance with 12.5 per cent returns over one year, 51 per cent over three years and an astonishing 99.3 per cent over five years. It commends the fund’s transparency in revealing all its holdings and engaging investors. The fund is also trailblazing the measurement of its investments’ impacts in clear terms.
2. Liontrust UK Ethical fund
This fund was selected for its strong performance and for providing high-quality transparent information to investors. It returned 18.1 per cent over one year, 44 per cent over three years and 90.1 per cent over five years. It invests in companies that aim to improve people’s lives through medical, technological or educational advances; improving resource efficiency; and helping to build a more stable, resilient and prosperous economy.
3. Rathbone Ethical Bond fund
This fixed income fund is praised for its strict screening and great performance. It returned 6.5 per cent over one year, 20.5 per cent over three years and 43.8 per cent over five years. In addition to the negative screen, the fund applies a positive screen to identify companies with well-developed policies in the following areas: corporate community investment, employment, human rights, management of environmental impacts and provision of beneficial products and services.
In contrast, ‘spinners’ are ‘lightweight’ ethical and environmental funds with significant holdings in companies such as British American Tobacco and EOG Resources, whose activities contribute to social and environmental problems.
Olivia Bowen, partner at Castlefield, says: ‘Some of these funds give ethical and sustainable investing a bad name and are in danger of watering down the meaning of responsible investment.’
1. Vanguard SRI European Stock Fund
Castlefield points out that the top holdings include British American Tobacco. The World Health Organisation says: ‘Tobacco use kills more than seven million people every year and costs households and governments over US$1.4 trillion through healthcare expenditure and lost productivity.’ As well as the adverse impacts on human health, BAT sources tobacco from suppliers in countries with human rights concerns.
Another holding that flies in the face of the social criteria, according to Castlefield, is Royal Dutch Shell. Shell’s business operations have significant environmental impacts, including toxic air emissions, contamination of water resources and the destruction of natural habitats.
John Eckersley, founder and managing partner of Castlefield, adds: ‘Despite passive fund providers recognising the demand for socially responsible investing from their own commercial perspective, to deliver a thoughtful fund in this area requires active effort, experience and expertise, and there's no cheap shortcut to that.’
2. Aberdeen Ethical World fund
One of the largest holdings of this fund is shale oil extractor EOG resources. The nature of this fund is a concern in itself, but Castlefield says it has also ‘faced accusations of illegal burying of waste and in 2011 a blowout occurred at one of the wells, resulting in natural gas and 35,000 gallons of drilling wastewater leaking into the ground. The company also uses a technique called flaring, which Friends of the Earth claim is a human rights violation, damaging the livelihoods and health of communities (health risks include premature death, respiratory illnesses and cancer)’.
3. Friends Life Stewardship fund
This fund, managed by Schroders, counts mining company Rio Tinto as one of its top holdings. In addition to many environmental concerns and incidents, the company ‘has interests in countries which human rights organisations have identified as having significant human rights concerns. Rio Tinto has a history of abuse of workers and indigenous peoples.’
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