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Ethical Investments: Niche market may become mainstream

  • October 2014
  • -
  • MarketLine
  • -
  • 28 pages

Introduction

Ethical investments are a small part of the overall investment market growing quickly. In Europe, SRIs have grown from 0.3% of assets under management in 2003 to 1.7% in 2013. This case study looks at how and why an investment is deemed "ethical", why some investors are choosing to invest ethically, and why others are not. The case study also examines the growth of ethical funds and their returns.

Features and benefits

* This case study looks at how ethical investments are defined and why investors may or may not invest ethically.
* The case study also looks at the growth of the market, and what is prompting this growth.

Highlights

According to a survey by Triodos Bank, activities that would prevent people from investing in a company, fund, or person are human trafficking and forced/child labor (75% and 73% of respondents, respectively), followed by pornography (59%), exploitative consumer goods production (57%), repressive government schemes (56%), and arms/munitions (55%).
A survey by Triodos Bank found that 54% of FTSE 100 companies and 111 of FTSE 250 companies are deemed unethical, based on their activities in areas that respondents said they were ethically opposed to. According to the survey, only 20% of investors say they are aware of the ethical extent of the companies they have invested in.
73% of those surveyed by UK opinion center YouGov in 2013 described the reputation of banking as bad with just 4% thinking that banks observed high ethical and moral standards. Additionally, 34% of respondents thought that new rules making it easier to switch a bank account would be important in improving some of the UK banking industry's problems.

Your key questions answered

* How are "ethical" investments defined?
* Why may investors invest ethically? Why may they choose not to invest ethically?
* How have ethical investments grown and how big is their market share?

Table Of Contents

Ethical Investments: Niche market may become mainstream
OVERVIEW
Catalyst
Summary
ETHICAL INVESTMENTS AVOID 'SIN SECTORS'
Ethical investments are green, sustainable and socially conscious, and have been around for years
A wide range of issues are considered unethical
Ethical investors are diverse
SEVERAL APPROACHES TO ETHICAL INVESTMENT EXIST
Dark and light green investments tend to be restricted to environmental issues
Screening entails avoidance or favorable comparison
Negative screening weeds out unethical companies
Positive screening assesses ethical practices
Preference or best-in-class can encourage other companies
Shareholder activism can improve ethical practices as well as financial performance
FandC Investments' REO (Responsible Engagement Overlay) is an example of shareholder activism
REASONS FOR ETHICAL OR MAINSTREAM INVESTMENT CHOICE VARY
Potential public backlash and the loss of trust in the banking industry may prompt ethical investment
The financial crisis has seen a loss of trust in the banking industry
Unethical investments may face a public backlash
Future government regulation and consumer boycotts could prove advantageous for ethical investments
Investors are calling upon governments to take urgent action on climate change
'Sin' sector funds are less volatile and may provide larger returns
Ethical funds may find themselves at a disadvantage compared to mainstream funds
Ethical funds grew at quicker rate than non-ethical in 2012/2013
Previous growth and forecast growth are strong
The top-performing UK ethical funds have seen huge gains in recent years
Climate-themed bonds have witnessed strong growth over 2014/2013
Green bonds
CONCLUSIONS
Ethical funds are growing quickly
The awareness of ethical issues is increasing, but has some way to go
Investors may still choose to invest unethically
Some investors are pushing towards governmental change
Appendix
Definitions
Sources
Further Reading
Ask the analyst
About MarketLine
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