Ethical investors could end up out of pocket if they stick to their principles, according to market research

Written by Ray Clancy

Thursday, 10 June 2010 08:28

The BP oil spill in the Gulf of Mexico has already been hailed the worst environmental disaster in US history and brought green issues to the forefront but investors opting for ethical investments could be out of pocket, research suggests.

Ethically minded investors who incorporate their principles into their financial decisions have a wide choice but it may not necessarily be the best financial option, according to Moneyfacts.co.uk.

Its research shows that ethical investors end up paying a premium for their principles, particularly over the longer term. It found that when it comes to investments over 10 years ethical fund realise 15.04% compared with 49.69% for non ethical funds. Over five years it is 33.48% compared with 45.87% and over three years it is -7.15% compared with 3.56%. Over 12 months ethical funds marginally outperform non ethical funds at 29.95% to 29.85%.

For savings the variable rates for ethical accounts are typically 0.26% compared with 0.91% for non ethical accounts. Ethical fixed rate bonds come
in at 2% compared with 3.07% and ethical ISAs at 0.86% compared with 2.12%, the research also shows.

The difference for mortgages is much more marginal. A two year fixed deal with an ethical mortgage is 4.68% compared with 4.55% and for a five year
fixed deal it is 5.47% against 5.62%.

‘Ethical investing is a lifestyle choice, where rate and performance is not the overriding factor, however, consumers are paying a premium for sticking to their principles. Only a handful of providers in the cash savings and mortgage market offer ethical products, meaning customers will have to work harder to seek the best deals out,’ said Michelle Slade, spokesperson for Moneyfacts.co.uk.

She pointed out that larger providers such as The Co-operative Bank do manage to combine competitive rates with an ethical stance and ethical iinvestors have a wide choice of funds into which they can invest, which can be used as part of a stocks and shares ISA.

‘While ethical investors have had to endure periods of underperformance, over the last year they have performed more successfully than their non-ethical counterparts. But ethical investing is likely to remain a niche market unless it does more to attract the mainstream market,’ she added.