A new report has named and shamed a number of so-called ethical investment funds for having high holdings in companies that don’t match their moral ideologies.
Barchester Green, an advisory firm that specialises in socially responsible investments (SRIs), revealed that the ethical and environmental funds from Zurich, Jupiter, Marks & Spencer, Scottish Widows and Prudential were not delivering on their ethical promises.
How ethical are ethical investment funds?
The Zurich Environment Opportunities Pension fund is billed by Zurich as a fund that invests in “companies which take a positive attitude to, or benefit from, environmental issues.” But 7.4% of the fund is invested in Royal Dutch Shell, 7.3% in BP and 4.8% in mining firm Rio Tinto – companies not particularly synonymous with environmental causes.
The fund has further holdings in GlaxKline, Vodafone and Tesco – financially robust companies that have very little to do with the environment. Marks & Spencer, which runs an Ethical SRI fund, was also criticised for investing in Shell and BP.
Ethical funds and big banks
Further analysis of ethical funds showed that a number had a high holding in the financial sector – the Scottish Widows Environmental investor has 35% of its portfolio invested in the banking sector, very few of which are known for their green credentials. Jupiter’s Environmental Opportunities, too, holds 10% in HSBC, Lloyds and Barclays, while Prudential’s Ethical fund has over a third invested in life insurers and banks.
What does the industry say?
A spokesman for Zurich said that it recognised that “the interpretation of ethical and environmental investment is subjective, which is why we offer a wide range of funds, including alternative ethical and environmental options, through our investment and pension products.”
Some funds invest in companies to engage in shareholder activism – in which investors attempt to positively influence corporate behaviour. This approach does not have to exclude or include any particular company, but instead fund managers encourage companies to adopt social and environmental best practices.
Marks & Spencer stated that it had downgraded BP and Shell and that neither company would feature in its fund’s portfolio. Meanwhile Johnny Russell, manager of the Scottish Widows Environmental Investor fund, stated that many banks prioritised lending to low carbon businesses and that ignoring them “would be counter-intuitive.”
We put this to the test. The Scottish Widows fund has a 9.7% holding in HSBC, yet when we asked HSBC if it prioritised lending to low carbon companies or had a mandate for green lending, it said that there was no specific onus on doing so.
Which? view on ethical investing
Which? investment expert Gareth Shaw said: ‘Mixing money with morals has become increasingly popular over the past decade – investors have begun to invest with a conscience in the hope that they can make a difference along with a decent return. But investors in these supposed ‘environmental’ funds may take one look at the holdings and wonder if their money is investing in any ethical companies.
‘Consumers might think that an environmental fund will have a positive impact on the environment but with Zurich and Marks & Spencer putting large proportions of their portfolios in companies like BP – responsible for the largest oil spill in American history – you have to wonder where the morals have gone.
‘Furthermore, how closely is investment in banks related to the environment? It seems that consumers are being misled into investing in funds where some of the ideologies behind them are forsaken in the search for higher profits, meaning that investors aren’t getting what they think they’ve paid for. This is all the more surprising given that many of the banks have admitted that they do not prioritise lending to green companies.’
For more information on ethical investing, take a look at our guide to ethical investments.
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