The Investments That Fuel a Green and Clean Future; PERSONAL FINANCE: Ethical Focus
Byline: ANGHARAD LYNN
ETHICAL financial products are shaking off their sandal-wearing image to become one of the fastest growing areas of personal finance. They abound in all areas - from unit trusts and investment trusts, through to pensions, savings and mortgages - and they are set to become an integral part of the market in the years to come.
In this special three-page report, Financial Mail assesses whether ethical products are good for your financial health.
MOST people are clamouring for a cut in the price of fuel - but not everyone. Many feel that oil companies contribute to pollution and that fuel use should be limited to prevent environmental damage.
Increasing numbers of investors are putting their money where their mouths are and choosing ethical funds or products as a key part of their personal affairs.
One of this growing band is John Arnison, 37, a freelance photographer from Leeds. He is adamant that cars should not be used more than necessary and uses his bike wherever possible. He also recycles bottles and newspapers as part of an environmentally-friendly lifestyle. And recently John took it a step further by investing in a cash Isa with Ecology building society.
John, married to Lucy, 31, says: 'I try to live an environmentally friendly life and supporting a building society such as Ecology is part of this.'
John, a Quaker, is happy with the interest rate of 5.05 per cent he earns from his account.
He says: 'I am not a City whizkid type. I am not looking for the highest possible returns. I obviously don't want to lose money, but it is more important to me that the company is ethical than it is to get the highest rates.' A growing number of people share John's views and they are now more able to run all aspects of their finances in an ethical way.
Though ethical investments represent just two per cent of the investment fund market, it is one of the fastest growing areas.
Traditionally, ethical funds do not invest in nuclear energy, oil, pharmaceuticals, arms or tobacco companies. Increasingly, ethical funds are choosing the companies they invest in for both negative and positive reasons.
For example, they will search for the company in a particular sector that is the most socially responsible or that is attempting to improve its environmental record.
Dan Kemp of specialist ethical adviser Holden Meehan in London says that these 'light green' funds are attracting more mainstream investors, and they are encouraging companies to clean up their acts and become more environmentally friendly. The key areas of personal finance where ethical products are making their mark are:
ETHICAL SAVINGS ACCOUNTS
Money saved with Ecology building society is used to finance ethical mortgages. It offers a cash Isa that pays 5.05 per cent interest, rising to 6.05 per cent if no withdrawals are made during the year.
It also has a 60-day notice account offering four per cent. Savers must be members of green organisations. Other ethical savings accounts are available through Coop and Triodos banks. Bristol-based Triodos bank uses money saved with it to finance socially and environmentally-friendly projects such as free trade coffee, wind turbine manufacturers and social housing.
It offers a cash Isa with a rate of 6.09 per cent.
Ecology building society uses the money lodged with it to finance mortgages primarily to people who want to build their own environmentally friendly homes or who want to renovate houses.
An ethical mortgage from Ecology building society has a standard variable interest rate of 7.39 per cent, with 0.5 per cent discount in the first year.
Norwich & Peterborough building society has a 'green' mortgage that offers discounts of between one per cent and 1.25 per cent on its standard variable rate to those who buy or build energy-efficient homes.
ETHICAL UNIT TRUSTS
According to statistics firm Standard & Poor's Micropal, there were just 15 ethical unit trusts in 1992. Now there are more than 40 with most unit trust providers running at least one ethical fund.
Friends Provident launched its first ethical unit trust, known as Stewardship, in 1984. Phil White of Friends Provident says: 'When we launched, people scoffed.
They didn't think it was possible to make money from such an investment.
Now it is a big part of our business.' There are three Stewardship unit trusts that invest in companies such as British Gas, Vodafone, Tesco and Centrica.
Fund manager Jupiter introduced its first ethical unit trust in 1988. Simon Baker, head of Jupiter's green department, says the funds were launched because of investor interest. He says that today's ethical investor is less likely to be someone who invests only ethically, but who sees ethical funds as forming part of an overall portfolio.
Baker adds: 'Six years ago, no FTSE 100 companies produced an environmental report and accounts in which they quantified their impact on the environment. Today more than 50 per cent do. As a result, we have increased the number of FTSE 100 companies we hold in our ecology fund from 18 to 40.' One of the biggest worries of those who invest ethically is that returns will be lower than when using a conventional investment fund. Holden Meehan's Kemp says: 'Just because you want to invest ethically doesn't mean you are making a donation to charity.
You still want good returns.' Latest figures from the Association of Unit trusts and Investment companies, show that ethical unit trusts tend to perform better than average. For example, [pounds sterling]1,000 invested five years ago in an average global growth investment fund would be worth about [pounds sterling]1,912.
However, the same amount invested in the average globally invested ethical fund would be worth [pounds sterling]1,989. The best-performing ethical funds in this sector are Equitable Ethical and Jupiter Ecology.
For those choosing a personal pension, most of the large providers such as Equitable Life, Norwich Union and Axa Sun Life offer ethical funds.
Those with occupational pensions have much more chance of being ethical thanks to new laws that came into force in July.
Under this legislation, pensions trustees must state whether they have taken ethical concerns into consideration in choosing investments.
According to a survey from fund manager Friends Ivory & Sime, 74 per cent of members of occupational pension schemes think it important that pension funds should use their influence as shareholders to encourage socially responsible behaviour by companies.
ETHICAL CREDIT CARDS
A number of credit cards from the Co-operative bank support organisations such as Green-peace, Oxfam and Amnesty International. The Vegetarian Society card is issued by People's bank and the Unicef card by Beneficial bank.
Card companies make an initial donation, usually between [pounds sterling]5 and [pounds sterling]10, when a card is issued.
Each time the card is used, a donation is made to the charity, usually about 0.25%.
ETHICAL LIFE ASSURANCE/ ENDOWMENTS
A number of ethical policies are available. Friends Provident, for example, has two life assurance funds in its Stewardship range and the Family Assurance Friendly Society has an ethical endowment policy.
These policies exclude sectors such as tobacco and arms manufacturers and invest in companies chosen for their environmental or social welfare policies.
* A FREE list of specialist ethical advisers may be obtained from the Ethical Investment Research Service on 020 7840 5700, Norwich & Peterborough building society 0845 300 2522, Triodos Bank 0500 008720, The Ecology building society 0845 674 5566, Friends Provident 0870 608 3678, Holden Meehan 020 7692 1700.
Old soldier is still doing his duty
FORMER soldier Albert Baltzer believes that looking after the environment should be everyone's duty, which is one of the reasons he decided on ethical investments.
Albert, 71, who lost a leg while serving in the Army in the Middle East, invested [pounds sterling]15,000 in an Environ unit trust with the Co-operative Insurance Society in 1995. It is now worth [pounds sterling]29,410.
He believes it is important to protect the environment. He says: 'People should realise that if we are not careful we are heading for catastrophe.'
Albert says: 'When I was young, the world was a greener place. It horrifies me what we are doing to the environment today.' But Albert, from Ipswich, Suffolk, does not invest all his money in environmentallyfriendly funds. He says: 'I don't believe in putting all my eggs in one basket, so I split my investments into different types of funds.'
THE WEB MAY HAVE ALL THE ANSWERS
THE internet is a good starting point for those interested in investing ethically. Specialist advisers such as www.holdenmeehan.co.uk and www.barchestergreen.co.uk give a great deal of background information and have sections where frequently asked questions about making such investments are answered.
Ethical providers such as the Ecology building society (www.ecology.co.uk) and Friends Provident (www.friendsprovident. co.uk) have websites that explain their policies, the type of savings and investments that can be made and the expected rates of return.
More general sites include www.ethical-partners.co.uk. This well-designed site offers answers to questions such as: 'How have ethical funds performed?'
The Social Investment Forum, a pressure group of companies, charities and individuals in the ethical investment world, has a site at www.uksif.org that again gives answers to questions such as: 'Is my money more at risk in a socially responsible investment?' It also gives advice to charities and pension fund trustees searching for ethical funds.
People wanting to set up socially responsible businesses can also find tips on how to go about it.
A major concern for those investing ethically is that the fund they choose should not invest in areas that are against their principles.
www.ethicalservices.co.uk has a fund selector function that allows visitors to find the ideal investment for them by saying which areas of social or environmental policy concern them most.
Other websites of interest to ethical investors include www.ethicalinvestors.co.uk and www.gaeia.co.uk. International sites include www.greenmoney.com and www.goodmoney.com.
Ethics are bonus for new investors
MARK Errington is typical of the new breed of environmentally friendly investor.
While he prefers not to invest in tobacco firms and companies that deal in arms to unstable countries, he would not call himself particularly 'green'.
Mark, 31, who works for a steel fabrication company, took out an ethical endowment policy with Family Assurance friendly society in February.
He says: 'I chose this investment because it is a 10-year plan, which I can save into regularly, and it has a good investment track record.
'While I am pleased about the ethical investment policy, that is not my first concern when it comes to investing.' Mark, a bachelor from Doncaster, adds: 'I try to do my bit for the environment by recycling bottles and papers and in my work in a steel company we are aware of environmental issues, but I am not fanatical by any means.'…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: The Investments That Fuel a Green and Clean Future; PERSONAL FINANCE: Ethical Focus. Contributors: Not available. Newspaper title: The Mail on Sunday (London, England). Publication date: September 24, 2000. Page number: 39. © 2009 Solo Syndication Limited. COPYRIGHT 2000 Gale Group.
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