Green and ethical investments growing in popularity and performance, research indicates.

Written by Ray Clancy

Wednesday, 20 October 2010 10:16

The majority of independent financial advisors in the UK offer advice on green and ethical investment, according to new research.

But the main barrier is concerns over the performance of green and ethical funds despite an October 2009 survey finding that 90% of wealth managers reported their responsible investment portfolios performed the same or better than other investments. Almost half, 48%, of advisers, who advise on these investments, say this is the key barrier to recommending them to clients more often.

Similarly the survey found that four in ten advisers, some 40%, think green and ethical funds do not cover all client risk profiles, even though the latest independent research shows there are now over 100 green and ethical funds to suit a variety of risk profiles and fit as part of a wider portfolio of investments.

The survey by the Association of Independent Financial Advisers (AIFA) indicates that more publicity is needed so that investors can understand the sector. It is hoping that the National Ethical Investment Week which runs from 7 to 13 November will aid that process.

‘With around £10 billion now invested in UK retail ethical funds this is an area of focus for IFAs. Consumers rightly look to independent advisers for guidance on investment issues. Advisers will want to be aware of how ethical investments can be an important part of the advice process for some clients. National Ethical Investment Week is a great time to take a closer look,’ said Andrew Strange, Director of Policy at AIFA.

Penny Shepherd, chief executive of UKSIF Chief Executive, said that the sector is no longer restricted to specialist ethical advisers. ‘Advisers are responding to increased interest from clients about green and ethical investment but we still need to challenge some of the myths and misperceptions about the sector,’ she said.

‘There are green and ethical funds with excellent recent and long term performance, which demonstrates the potential for investment growth in the sector. Of course, some funds have experienced challenges during the downturn, particularly if they have a small cap bias. However, the potential future growth from sustainability themed investments, such as green energy, is huge,’ she explained.

The survey also reveals that the level of information on green and ethical investments has significantly increased. Almost four in ten advisers, 38%, say there is an adequate level of information and it is easy to find compared to 34% in 2009 and just 15% in 2008.

‘Many more advisers are both interested and well informed compared with a few years ago. And it is very positive that there is more information available for advisers about this growing sector. But, it is still common to meet advisers who have misperceptions about the sector. In particular, advisers often expect clients to be either 100% ethical investors or not interested at all,’ said Shepherd.

‘In practice, increasing numbers of clients want some exposure to green and ethical investments as part of a mixed portfolio. And they want an improved focus on risks to their investments, including social and environmental risks. While with over 100 green and ethical funds now available there is the ability to match investments to different risk profiles,’ she added.