March 3, 2010

Social Responsible Investing in the UK. ~ Penny Shepherd

This article is excerpted from the Spring 2010 edition of the online publication GreenMoney Journal.  The GreenMoney Journal, started in 1992,  is an award-winning publication dedicated to socially responsible investing, business and green consumer information.  According to their mission statement, their goal is “to educate and empower individuals and businesses to make informed financial business decisions through aligning their personal, corporate and financial principles.”  To find out more, visit their website!

Green and Ethical Investing starts an exciting new growth phase

The UK’s modern green and ethical investors

Green and ethical behavior is becoming a significant mainstream choice here in the UK. “Social purpose is the new social status,” says Edelman, the PR agency. And this extends to investment decisions.

More than two thirds (70%) of people in Great Britain now consider their outlook and lifestyle to be either very or fairly green and ethical, according to new research from YouGov, a polling agency, published by UKSIF in November 2009. Even more significantly, half (49%) of people with savings and investments would like to make money and make a difference with their savings and investments, the poll found.

One factor may be the public anger at “greedy bankers” and the bonus culture. This has been as visceral in the UK as in the States. But concern about climate change has been a growing feature of UK public debate in recent years and “eco” and “ethical” are seen as desirable attributes for food, fashion, housing and more.

Experienced financial advisers report that wider ranges of clients are demanding investments that fit with their personal values. These new modern green and ethical investors are looking for ways to make money and make a difference – initially with part of their portfolio. They are more focused on the positive and less likely to be concerned about what they wish to avoid.

This interest has been reflected in net investment flows into UK ethical funds during the financial crisis. In spite of market turbulence, these funds saw positive net sales every month from February 2008 to May 2009 as well as during the stock market recovery that followed. This backed up anecdotal evidence from the time of the dot-com crash that responsible investors are loyal and looking for longer-term returns.

Protecting asset value and benefiting from new trends

But it is not all about personal values. Following the financial crisis, there is a new interest from both private and institutional investors wanting to protect asset values and benefit from sound long-term investment trends such as demographic change and the transition to a low carbon economy.

And UK financial services minister and former fund manager Paul Myners has waged a sustained campaign for institutional investors to behave as owners, castigating them for allowing value destruction by “ownerless corporations.”

UK Pension funds

Responsible investing by occupational pension funds is growing, although there are still leaders and laggards.

UKSIF tracks the responsible investment policies of the pension funds of UK listed companies that are leaders in corporate responsibility. We published our second survey of progress in Summer 2009. This found a group of Responsible Investment (RI) champions beginning to emerge among UK corporate pension funds, with trustee leadership driving change. Of those who completed our survey in both 2007 and 2009, three quarters achieved a higher score.

At the end of 2009, our local government (i.e. municipal) pension fund survey found that these public sector funds are increasingly implementing responsible investment, although barriers remain. Eighty-eight percent of respondents pointed to lack of time, resources, and competing priorities as significant inhibitors. A leader among these funds is the pension fund of the UK’s environmental regulator, which recently announced a tender for a green-focused bond mandate.

The stakeholder views gathered recently by the new UK National Employment Saving Trust (NEST) about its future investment policies were perhaps the most significant sign of change. This national contributory pension fund system is to be introduced from 2012 to help low and middle income workers grow “nest eggs” for their retirement. The majority of respondents to its consultation want responsible ownership practices to be applied to all funds within the scheme.

Tenth Anniversary of Pensions Regulation

Looking forward, this summer sees the tenth anniversary of the UK’s groundbreaking regulation which requires occupational pension funds to disclose the degree to which, if any, they take account of sustainability and social responsibility issues in their investment decisions.

This regulation has been copied around the world. It has not only stimulated change within the UK but also been a catalyst for the gradual shifts in pension fund behavior that have led to global initiatives like the UN Principles for Responsible Investment.

UKSIF will be celebrating with a reception in June at the Palace of Westminster, seat of the UK parliament.

National Ethical Investment Week

The third National Ethical Investment Week is being held November 7-13 and will be our second major event of the year.

UKSIF launched National Ethical Investment Week in 2008 to raise awareness of the green and ethical options available to investors. We use the term “ethical investment” because it is the most commonly used consumer and personal finance UK term for what Americans would call social investment.

The second National Ethical Investment Week (“NEIW”) took place in November 2009, thanks to sponsorship from fund managers Aviva Investors, CCLA Investment Management, the Co-operative Financial Services and Henderson New Star. It highlighted today’s opportunities to “make money and make a difference” using green and ethical investing. Taking place a month before the Copenhagen Climate Change conference, the timing was particularly fortuitous.

Press coverage of green and ethical investment during and in the run up to the Week well exceeded our targets. In total, over 60 organizations got involved – three times as many as in 2008. Over 30 events took place for investors and their professional advisers in 16 towns and cities across the UK. Parliamentary receptions were held with the Financial Secretary to the Treasury at the House of Commons, and with the Scottish Cabinet Secretary for Finance and Sustainable Growth at the Scottish Parliament. These promoted green and ethical investment to policy makers. Click here for more details.

Our vision is to build on the success of Fairtrade Fortnight, the annual campaign that has driven UK sales growth of producer-friendly consumer products from a niche to a mainstream choice. Running every spring since 1995, it is now firmly established in the calendars of media and supermarkets as well as campaigners. Like Fairtrade Fortnight, National Ethical Investment Week acts as a focus for activity by a wide range of supporters so that, by all raising awareness at the same time, we can achieve a critical mass of impact.

UKSIF provides the hub – particularly by providing a web-based clearinghouse to promote everything going on during the week and an associated media program. We manage and distribute the logos, posters and other marketing material that gives a strong visual identity for the week, and give suggestions for action and advice on keeping within regulatory rules on financial promotions. We also set conditions for involvement, including such tricky issues as whether or when unregulated investments can be promoted as part of the Week.

The Week has proved to be a great opportunity to involve mainstream trade bodies, like the UK’s Association of Independent Financial Advisers (AIFA). They have used it both internally and externally to highlight this growing market to their members and to promote to the investing public the benefits of this aspect of professional financial advice. And it has been even more effective in galvanizing UKSIF’s members to reach out to spread the word about modern green and ethical investing.

A Green Individual Savings Account?

If we see a Conservative government in the UK this year, then tax incentives to invest in green funds will be on the agenda. They propose a tax-free “Green Individual Savings Account” to incentivize private investors to support the transition to a low carbon economy. UKSIF contributed to an expert report commissioned by the Shadow Chancellor in late 2009 on how best to implement this new savings vehicle.

Paying the piper

There is an old saying that “he who pays the piper calls the tune” – and there has been concern over many years about whether green and ethical investment was being held back because most financial advisers were paid through product provider commissions rather than client fees. Now, the UK’s financial regulator will be outlawing such commission from 2012, as well as demanding higher qualification levels for advisers. This is certainly driving a greater adviser interest in services like life planning and we expect also to see greater willingness to explore client interest in green and ethical options. Equally, it is easy to place too much emphasis on this – there is a generational change going on within the adviser community, and UK society generally is more attuned to responsible behavior. Both of these factors drive adviser interest too.

Growth in supply

Within investment management the number of responsible investment practitioners and new investment products continues to grow. There was an impressively low level of responsible investment staffing cuts at asset management houses during the financial crisis. And there is continued growth in interest among wealth managers and in the number of boutiques set up to manage sustainable investment offerings across different asset classes. One example of new investments available in 2009 to UK retail investors was the “Vaccine Investment Plan,” a fixed income offering to raise funds to accelerate childhood immunization programs in developing countries.

London as World Center for Sustainable Finance

UKSIF has two key aims for the next few years:

First, is to build and develop support for private investors, churches and charities through the annual National Ethical Investment Week. This includes making it easier for these investors and their advisers to judge the social and environmental impact as well as the financial impact of their investment choices.

Second, is to raise the profile of the UK as a World Center for Sustainable Finance. As financial services become more global, we look forward to more American and other investors choosing to take advantage of the UK’s world leading expertise to enable their investments to make money and make a difference.

Article by Penny Shepherd MBE, Chief Executive of UKSIF, the UK sustainable investment and finance association. UKSIF is the industry body with the widest range of members in sustainable and responsible finance in the UK. It organizes the annual National Ethical Investment Week to raise awareness of today’s green and ethical investing options. It is the sister organization of the Social Investment Forum in the US and up until early 2009 was called the “UK Social Investment Forum”.

This information should not be taken as financial advice or seen as an endorsement of any particular company, organization or individual. While they have sought to ensure this information is correct at time of print, the author and UKSIF do not accept liability for any errors.

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