A study of funds available in the UK which purport to be socially responsible and ethical has shown that very few actually invest in companies which are directly tackling climate change.
The report, ‘A Guide to Climate Change Investment’, by independent financial advisor Holden & Partners, examined the Top 10 holdings of all SRI, ethical and environmental funds available to UK private investors.
It found that most SRI and Ethical funds’ top ten holdings are surprisingly mainstream, with names like Vodafone and Royal Bank of Scotland occurring time and again. However, many also have holdings in large mining corporations as well as BP, Shell, Total and other oil majors.
As a result, investors in SRI and ethical funds, who were hoping to support the low-carbon economy, may find that they are buying into multinationals more associated with being part of the problem rather than part of the solution.
Of the SRI funds that gave full information about their holdings, Henderson’s Industries of the Future scored most highly with 51.1% of its fund in environmental solutions providers. In contrast, environmental stocks make up less than 1% of L&G Ethical Funds portfolio.
The new generation of environmental and climate change funds is far more focused on companies developing global solutions to environmental problems. However, some of these also throw up some curious holdings including Porsche, Renault, Nestl and Danone.
“This report shows that the SRI and ethical funds have not kept pace with the public’s appetite for environmental solutions. Many are investing in mainstream ‘old economy’ companies whose contribution to solving environmental problems is questionable. There are good environmental funds available though, the environmental economy is enjoying strong growth and is an investment opportunity. However, it is a complex area and we would recommend that anyone making an investment seek independent financial advice,” says Peter Holden, partner at Holden & Partners.
The report highlights that there are a number of ‘pure-play’ environmental investment vehicles available with 100% exposure to environmental solutions providers. These include listed funds investing in worldwide listed stocks, such as Impax Environmental Markets Trust plc and Merrill Lynch New Energy Technology plc; AIM listed funds investing in private companies such as Low Carbon Accelerator and Ludgate Environmental Fund; and private funds available to retail investors such as Triodos Renewable Energy Funds plc which has 100% of its holdings in projects and companies.
“We hope that our Guide to Climate Change Investment will help private investors sift through the range of funds on offer and identify those which are looking to the future and not simply offering pseudo tracker funds. The world is changing very fast. As an investor in twenty years will you look back and wonder why you did not read the signals. The global market for environmental goods and services is incredibly exciting and we believe there is a good chance that within the Climate Change Funds you may find the Microsoft of the future,” addds Mark Hoskin, partner at Holden & Partners.