However, it left a particularly foul taste in members of the Green Party’s mouths, following the chancellor’s announcement that he would hand out £1.3b worth of tax breaks to the North Sea oil and gas industry.
Brighton MP and Green Party member Caroline Lucas released a statement referring to this decision as “eye-watering”, following a cross-party climate pledge which had occurred just weeks beforehand.
This begs the question: can economics and ethicality co-exist peacefully? Ethical investment specialist and financial advisor at GreenSky Wealth Bob Wilson thinks they can.
“I’m starting to see more interest in the ethical market again,” he said. “We promote ethical principles, not just ethical funds, and it seems that people are coming to us based on those principles.”
“During the financial crisis, people’s ethics started to go out the window a little bit as they were much more concerned about how much money they were going to lose or how quickly they can recover their money after losing such as large chunk. As a result, we saw less interest in ethical funds at that point, but I’ve certainly seen more interest recently.”
A counter-argument often used against ethical funds is that they’re nothing more than an emotive marketing gimmick, and that some funds can contain companies that are far from virtuous.
“It really does depend on what your ethics are,” Wilson explained.
“A lot of advisors just say, “well it’s in the ethical investment sector, so that will do”, but there’s a lot more to it than that. Once you start drilling down you find some companies that people aren’t necessarily that interested in or don’t want to invest in at all.”
“Everyone’s ethics are so different. I’ve met loads of green, environmentally-friendly people who smoke like chimneys, so they can’t really object to investing in British American Tobacco, for example. You do get a real disparity between these things and there can be clashes.”
A further argument is that ethical investments carry greater risk, due to the exclusion of some potentially lucrative large-caps. ‘Dark green’ funds, such as AEGON Ethical, have extreme investment limitations as a result of their ‘vegan’ ethical code.
Wilson argued: “If someone comes to see us and they want to invest ethically, then automatically the ethical principles become more important than other factors.”
In a bid to prove that being green doesn’t have to be mean, Wilson runs through his favourite ethical funds.
Henderson Global Care UK Income
Wilson said: “If you look at its past performance it’s very good. In the last few years, it’s been in a sector that we’ve really liked, as the companies it’s investing in are generating a good dividend income, giving a good total return growth.”
As shown in the graph below, the Henderson Global Care UK Income fund has achieved 93.74 per cent returns over five years, which is almost double that of the FTSE All Share.
Fund vs sector and index over five years
Source: FE Analytics
The five FE crown-rated fund, which is managed by Andrew Jones (pictured), has been quartile over one, three, five and 10 years and boasts a 3.3 per cent yield.
Over a third of its weighting is in financials, 17 per cent of its weighting is in industrials and 12.4 per cent of its weighting is in consumer services.
The fund is classified as a ‘light green’ portfolio as it also holds some weighting in the oil and gas sector.
It should be noted that ‘light green’ funds also invest in companies which have taken some positive steps towards improving their ethicality, as opposed to the strict investment criteria of ‘dark green’ companies.
Jupiter Ecology
While Wilson admits that this fund’s performance hasn’t been particularly strong over the past few years, he believes that the ethics of the fund are some of the strongest out of any OEIC in the ethical sector.
“If you look at some of the ethical funds and actually drill down into them a bit and look at the companies they are investing in, some people can find them slightly unpalatable. They could have companies like Vodafone or Tesco or something in there, and the reason they’re in there could be because they look after staff and they do good things in the community.”
“However, they’re perceived to be part of the big bad market taking over the world, so it depends on what your ethics are really. The Jupiter Ecology fund has got really, really strong ethical principles.”
Despite a disappointing five years, the fund has beaten the IA Global sector the over a 10-year period, delivering returns of 124.45 per cent.
Fund vs sector and index over 10 years
Source: FE Analytics
SVM All Europe SRI
Despite this fund’s drop into bottom quartile over the past year, Wilson believes that it is one to keep on the radar.
He said: “I like this fund at the moment because, with QE happening in Europe, EU stocks might get a bit of a boost.”
The £20.2m fund has received a rating of four FE crowns and operates a positive engagement approach towards investment, classing it as a ‘light green’ fund. As such, SVM All Europe SRI holds a 2.8 per cent weighting in the oil and gas sector.
Its main areas of investment, however, are financials, telecom, media & technology, and industrials.
While this may not seem overtly ethical at first glance, management duo Hugh Cuthbert and Neil Veitch (pictured) enter into meaningful dialogue with the companies they are invested in regarding social and environmental issues.
The pair launched the fund in October 2006 and since then it’s been top quartile for its risk-adjusted returns, as measured by its Sharpe ratio.
Fund vs sector and index over five years
Source: FE Analytics
In the last five years, it has also gained returns of 64.71 per cent, which is 15.83 percentage points more than its peers and 21.63 percentage points less than its index.