Investors should be wary before putting money in green or ethical funds because there is little consensus on investment policy among managers, says research.
Some such funds focus simply on excluding “sin” sectors such as tobacco, alcohol, arms and gambling; others target companies with good social responsibility programmes; others still focus on firms which engage in green activities, such as developing renewable energy.
The criteria for investment may be very different in each case, says Jason Hollands of financial advice group, Bestinvest, and investors must “look beneath the bonnet” to ensure the fund reflects their desires.
There are a number of controversies within ethical investment, he adds, and managers have taken different positions. Some managers will shun companies that engage in animal testing, while others say the practice is important for creating medicines. Some managers will prefer not to invest in supermarkets, which have aggressively squeezed margins for suppliers, while others will invest in these firms if they stock ethically sourced goods and organic food.
Another question is whether to exclude large retailers which may stock a small number of items made from fur.
“Nothing is straightforward with ethical investment,” says Hollands.
©2012 funds europe