Ethical investing

I spotted a story related to this many days back, now, in the Financial Times. It pertained to the performance of so-called ethical funds (interested? Check out Ethical Corporation, a pretty decent news magazine following ethical corporations/investing).

From the Financial Times:

Large ethical companies consistently outperform the market, according to a survey of corporate social responsibility by Goldman Sachs, the investment bank.

The study found that companies on an ethical list compiled by Goldman outperformed the MSCI World Index by an average of 25 per cent, with 72 per cent of companies outperforming their sector peers.

Most existing ethical indices, such as the Dow Jones Sustainability Index and FTSE4Good, have underperformed the stock market average since 2000. Goldman claims this occurs because the indices are based on ethical environmental, social and governance (ESG) factors in isolation.

The GS Sustain focus list instead identifies ESG measures relevant to specific sectors, such as energy or pharmaceuticals, and combines them with other indicators of performance.

Honestly, FTSE4Good? Who came up with that?

In any event, good news – kind of. There’s still, at this point in time, some space between public and actual committments, not to mention intentions, actions and results. It’s still better, to be sure, than a story about how shit the returns are on ethical investments. The story ends:

However, the survey reveals a big gap between good intentions and corporate practice. While three-quarters of chief executives said ESG issues should be embedded into company strategy and operations, only 50 per cent thought their company did so.

And half of those are probably wrong, anyway. As luck would have it, though, the scope to make money off this is expanding – and legitimately, rather than just taking berks ‘going green’ for a quick ride. Today’s Telegraph has an article about some recent work that found no link between polluting and making profits (the idea within us all is that it’s cheaper to pollute; seems this might not be the case, after all):

There is no link between companies’ pollution levels and profitability, which should push fund managers to opt for greener companies, according to a study.

Trucost, which monitors environmental output, said it found for a second year running that the worst polluters were not necessarily the best in their sector.

The absence of a link should encourage fund managers to opt for environmentally friendly companies because of the increasing likelihood that governments will impose financial penalties on heavy generators of carbon, Trucost said.

If you’re a potentially ethical investor, give Trucost’s website a looking-over, also. Ethical Corporation, also, has a very good article encouraging you.

Purely in terms of opportunity, consider this: oil prices are increasing, but the costs of finding increasingly less oil are also increasing (I don’t read the Oil Drum for nothing). No sooner will alternatives, however small, be found, than the value of those endeavours will fall, and with (probably, to my mind) little in the way of salvage to be had.

Meanwhile, everything from biofuels to photo-voltaic cells in vespas are attracting capital – whether they’ll pan out or not. Will bloody oil shale be likely to pay off even close to as highly, or reliably? The likes of Fidelity Investments and Climate Change Capital are pushing climate change as the moving markets – and why wouldn’t they be?

“There are five major market trends that we believe will develop over the next five years that will be a result in climate change,” said Mark Woodall, chief executive of Climate Change Capital – an investment banking group specialising in opportunities created by a low carbon economy.

He highlighted these as:

  • Consolidation of existing segments such as wind power
  • Growth of commodities such as biofuel
  • The identification of the low-cost countries that will mass produce these technologies
  • Stop-gap technologies that may not be the ultimate solution but will be in demand in the short to medium term, and
  • Adaptation technologies, which will help us live in a world altered by climate change.

In the first four months of 2007, ethical funds sales rose 83 per cent compared with the same time period in 2006, figures from Fidelity Funds Network reveal. If this trend continues sales for 2007 are set to double those of last year.

Read through that zerocarbonbritain report, about which I wrote yesterday, and consider where the money is to be made: getting in before these green-cottage industries take off, or investing in a machine that makes Russia nicer about sharing their oil.


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