Ethical investment funds outperforming the mainstream

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Sustainable investment is on the up

Funds investing in businesses which are run ethically and with a concern for the environment are doing well and proving popular. The UK was going that way anyway i.e. towards a greater awareness of the environment and the health of the planet because of a dawning belief that climate change is real and that it threatens our existence. The coronavirus pandemic dotted the i’s and cross the t’s in our journey towards a belief that businesses need to be more ethical. They need to commit to sustainability and pull back from the excesses of the past in abusing the environment and nature.

Sustainable investment is on the up

Sustainable investment is on the up. Photo in public domain.

This change in culture has become evident in the UK in the fact that environmentally sustainable funds have outperformed traditional ones across the board so reports The Guardian newspaper. They relied upon data from the global research agency Morningstar. One of the world’s biggest fund managers, Vanguard, has launched two ethical index funds aimed at UK investors. And a big British insurer, Aviva, have created a “climate transition fund” as they call it.

You don’t have to do trade-off for performance if you invest in a sustainable fund. The truth is that the majority of them have outperformed traditional funds over “multiple time horizons” says the report.

Over 10 years, returns from sustainable funds has been at 6.9% annually while a traditionally invested fund has returned 6.3% annually. Sustainable funds are outperforming during the coronavirus pandemic as well. Part of the picture is the fact that US tech stocks which are popular with environmental investors have done extremely well while shares in coal, gas and oil have dived. You may remember that Shell has declared that it is going green. The recognition that even these megalith companies entrenched in old carbon burning businesses are at last changing their ways.

Of course, campaigners and environmentalists will be very pleased. A charity and company that promotes responsible investment, ShareAction, reported that it is very positive news but unsurprising. Investors are realising that you won’t lose out if you invest responsibly and this has removed a barrier to doing so.

Perhaps the public is wiser and smarter than the directors of companies which abuse the planet. The public sees it as better business to run a company ethically and with good governance. The public want to see funds invest in these businesses in order to help the environment and put a brake on climate change. Younger people particularly are more interested in environmental issues. Women are interested in high quality governance followed by environmental concerns and returns come last.

ShareAction have reduced an independent global ranking of the most responsible asset managers. The obvious way forward for people who want to invest is to do your research. Go on the internet and dig deep to find out the best. FYI – sustainable investing directs investment capital to companies that seek to combat climate change, environmental destruction and promote corporate responsibility. It is called ESG investing: Environmental, Social and Governance.

Postscript: today, Saturday, October 24, 2020, The Times reports that ethical funds outperform other funds in the UK but not, I stress not, with respect to global ethical funds. The reverse is true in global ethical funds. They had an average 10-year return of 150.1 per cent, while non-ethical funds made 176.2 per cent.