Investment in ethical and sustainable funds grew 70 per cent in the year to June 30 as more investors adopt socially responsible investment practices. Penny Sutcliffe reports on the problems in keeping pace with such a thriving trade, and the need for training and regulation in this area.
Google the term ‘Ethical investing” and wikipedia will define ethical investing as socially responsible investing that attempts to ensure that invested funds are not used to violate the investor’s most basic moral values or ethical codes. But no matter how ethical investment is described, the reality is that everyone’s ethics are different, and often, they change.
An individual’s personal circumstances can define what is and isn’t important to them, meaning they may not be willing to have their money invested in certain areas. There are a wide variety of means to ensure that invested funds are used ethically, and a wide range of interpretations of what “ethics” mean relative to investing.
It is not hard to make a link between the community anger toward ‘unethical’ actions in major corporate collapses, costly operating errors and rising community expectations about corporate environmental, social and governance performance. When Friends Provident launched the first UK ethical unit trust ‘Stewardship Fund’ in 1984, city analysts predicted that the consumer SRI market in the UK would eventually reach a maximum size of £2 million. However, as at February 2004 the total value of consumer SRI funds in the UK stood at £4.2 billion - 2,000 times the original estimate.
According to the Ethical Investment Research Service (EIRIS), there were almost half a million ethical fund account holders in the UK by February 2004 who invested in around 62 ethical investment funds, provided by over 30 financial services organisations. The 6th Annual SRI Benchmarking Study released by the Ethical Investment Association (EIA) in Australia last week shows that Sustainable Responsible Investment (SRI) is growing strongly in Australia due in large part to strong sharemarket returns and growth in the level of superannuation assets and investment portfolios.
The results found that Managed SRI portfolios grew by 56% during the 2006 financial year from $7.67 billion to $11.98 billion, an increase of $4.31 billion. According to Standard & Poors, Total Investment Management of all types of managed portfolios grew 15.5% in that same period. Around 119 superannuation funds in Australia now offer 317 SRI investment options between them. Another contributor to growth has been the markets: investment returns on previously invested funds contributed $785 million to the increase. Capital inflows to established SRI funds were worth $512 million and contributions to new funds $153 million. What does this mean For FinanCial advisers?
A UK Social Investment Forum (UKSIF) survey of 35 top independent financial adviser (IFA) firms reveals that only 52 per cent (18 firms) ask clients about ‘ethical concerns’ in their standard client fact find. On closer examination of the 52 per cent, only 28 per cent (5 firms) were able to quote the question and none included the words environmental, social or religious concerns in their phrasing. “It is heartening to hear that 15 per cent of the top firms are asking clients about their ethical concerns, but clearly there are many laggards, says Penny Shepherd, Chief Executive of UKSIF.
“Advisers are missing out on significant referral and marketing opportunities and may not be delivering best advice for the growing numbers of consumers concerned about issues such as fair trade, human rights and climate change”. The survey, funded by UKSIF members, Friends Provident, Insight Investment, Jupiter Asset Management and Morley Fund Management, also questioned firms about training on ethical and socially responsible investment.
ver 70 per cent of firms (25 firms) do not provide training for advisers on ethical and socially responsible investment and 90 per cent of firms do not include it in advisers training needs analysis for CPD (continuing professional development). Furthermore, most firms were unable to confirm how advisers kept up to date with changes to ethical fund criteria, the launch of new research tools, new ethical or socially responsible investment techniques or performance research.
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To meet the demand in this growing area the EIA (Ethical Investment Association) in Australia has partnered with SAI Global to produce the world’s first online Ethical Investing course for Financial Advisers and Dealer Groups. This course provides financial advisers with the essential skills and knowledge they need to offer ethical investing advice, tap into a rapidly growing market and deliver superior client service. It addresses some of the most important issues financial advisers will face as ethical investment continues to grow.
“Terminology, an explanation of ethical issues and how they relate to investments are topics that will start to become the norm when advisers consult with their clients,” says Terry Hancock, Head of Compliance, SAI Global. “Investors are starting to look for advisers that know how to develop an investment profile that matches their values,” he says. “This course addresses this by covering product familiarisation, portfolio construction, direct share advice, access to global research and includes interactive case studies.”
The course comprises of 10 modules:
1. What is Ethical Investing?
Explains what ethical investing is and outlines the types of ethical investing.
2. Why Advise Clients About Ethical Investing?
Introduces you to the opportunities and advantages of providing advice on ethical investing through your practice.
3. Creating an Ethical Profile
Describes how to create an Ethical Profile for your client and explains why these profiles are so important.
4. Products and Approaches
Deals with the various stock selection processes that investment managers use to create Ethical Investment and SRI products and introduces you to the various products in the market.
5. Ethical Analysis of Direct Shares
Explains how direct shares are analyzed for the purposes of Ethical Investment and SRI.
6. Constructing a Portfolio
Guides you through the process of how to construct a portfolio for an ethical investor using their Ethical Profile.
7. Ethical Vs. Standard Investments
Explores the similarities and differences between Ethical Investments and standard investments and provides you with a range of leading research papers on that performance of Ethical Investments.
8. Entering the Ethical Investment Market
Explains the steps you need to take to become part of the Ethical Investment market.
9. Next Steps
Gives you the opportunity to learn more about the Ethical Investment Association (EIA), about what you need to do to become a member and about how to achieve SRI Certification.
10. Assessment
The game-based assessment tests your understanding and helps you to identify any gaps in your knowledge.
Once financial advisers successfully complete the course, a certificate is provided which can be used towards SRI certification. The SRI Symbol is the word’s first Certification Program for providers of Sustainable Responsible Investment (SRI) and Ethical Investment products and services. Developed over two years with extensive industry consultation, the SRI Certification Program was driven by investors’ requests for help in making informed choices regarding investment considerations as well as financial returns.
Once financial advisers have completed the online Ethical Investing course, they can the complete the application available from the EIA (www.eia.org.au) to apply for the authority to use the SRI symbol. Interested participants can register for the Ethical Investing training course by visiting www.ethicalinvestmenttraining.com