Jupiter's Solar Panel - Green investment goes mainstream
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Ethical investments no longer a moral choice
By Heather Peacocke, FTMarketWatch.com
Last Update: 8:27 AM ET Feb 1, 2001
LONDON (FTMW) - Socially responsible investments used to be the domain of middle-aged, tree-huggers, now they're gaining a reputation as common sense funds with long-term growth opportunities.
In the past, ethical investors were accused of backing companies for moral reasons rather than for profit, according to Ian Morrell, director of operations at independent financial adviser Holden Meehan.
Times are changing though.
The environment is under threat and technology is advancing so that "green" companies can now offer big profit and growth prospects.
There were some forward-thinking companies with sound track records that made them a solid investment, Morrell said.
Media coverage of ethical funds had also been more sympathetic in recent years.
"People are intrigued by the investment possibility rather than the moral issues," he said.
Socially responsible investment has risen steadily during the past few years with £3.3 billion invested in acknowledged ethical funds by June 2000, the IRIS Ethical Investment Research Service says.
This is an increase from £2.1 billion in January 1999 and £1.7 billion in January 1998.
Light green or dark green?
Ethical investments come in all shades of green, with some funds steering clear of armaments, gambling and animal testing while others support companies developing ground-breaking technology or making an active effort to improve their environmental strategy.
"We try not to get into the moral issues," Morrell said. The top priority was provide information and support so people could prepare for their future financial needs
Holden Meehan classify ethical funds as light, medium and dark green, the later seen as the most socially and environmentally conscious.
Light green is viewed as the "most palatable" for the average investor while "dark green funds are better at telling you what you can't invest in," Morrell said.
"It's very difficult to match a dark green personal philosophy with the cautious investment approach of the average investor," Morrell said.
However, one example of a leading dark green stock was Ballard Power Systems, (BLDP) the world's leading fuel cell developer, which could potentially change the way the world receives electricity.
Holden Meehan classifies oil giant BP Amoco (BP) as a light green investment. "BP have a much more engaged approach with the outside world than the other oil companies and people see this as a strong business."
Some may be surprised that British drinks group Diageo (DGE) is a medium green but it has a reputation for being actively involved in community investment.
British Telecom (BTA) is also viewed as a medium green investment due to its track record with charitable donations, although some investors probably feel strongly about what they may see as its monopolistic tendencies.
"Nobody is perfect. We are looking for companies making the most effort in the most areas," Morrell said.
People, planners profit
Socially responsible investment (or SRI in the industry jargon) focuses on the triple bottom line "people, planners and profit" - labour relations, environmental sustainability and financial transparency. This research technique is gaining popularity among conventional fund managers as a valuable tool to assess potential clients.
As a result, the line between ethical and conventional funds was becoming increasingly blurred, Morrell said.
Simon Baker, Jupiter's Green Department head, said attitudes toward the environment and pollution had changed dramatically in the past decade.
There is a general acceptance in the market that environmental problems are not going to disappear. "If you find a solution to one of these problems then naturally you are investing in a growth area," Baker said.
An example of this was wind power, increasingly competitive with conventional power due to advances in technology. Consequently, wind turbine companies Vestas (VWSYF) and NEG Micon (897922) have performed well.
Jupiter's green funds outperform
Jupiter has two socially responsible investment unit trusts, the global Jupiter Ecology Fund (RWE) , worth £150 million, and the U.K.-based Environmental Opportunities Fund (RWEO) worth £12 million.
The funds are distinguished by their rigorous approach to company selection with separate environmental, social and financial assessments.
Jupiter Ecology Fund, established in 1988, "tried to be all things to all people," Baker said.
It avoids investing in companies that derive more than 10 percent of income from the: manufacture or sale of armaments, alcoholic drinks or tobacco products; distribute pornography; generate nuclear power; operate gambling operations and conduct animal testing for cosmetics and toiletries.
The 10 percent exception is necessary explains Baker.
"Kingfisher's (KGF) Do-it-Yourself chain B&Q is a good environmental supply company, however, 1.5 percent of Woolworths turnover came from lottery sales."
Alcohol, tobacco free
Most supermarkets sell alcohol and tobacco meaning they would be excluded from the fund if there was an absolute bar.
Rigid criteria excluded too many companies that were doing good things, Baker said.
Jupiter's Environmental Opportunities Fund was born in 1999 in response to the emergence of the more sophisticated ethical investor who was less concerned about the negative implications of some companies.
Baker said he was thrilled there was growing interest in ethical funds, but warned it had to be kept in perspective.
"Not every company that operates in a green manner is naturally a winner."
"I believe in green investment as a growing area, we can achieve above average returns on investments," he said.
The Jupiter Ecology Fund boasted 5-year 122 percent growth, which is well above the average global growth fund performance of around 80 percent for the period. In the 10 months since it launched, the Environmental Opportunities Fund grew 11 percent. It battled a difficult market environment, and outperformed the FTSE All Share index by more than 15 percent.
"The key thing is we must never forget that every company in this area is in it to make money first and be green second. That's what people have to be aware of when they invest."
See profiles of Jupiter Ecology Fund and Jupiter Environmental Opportunities in FTYourMoney.
Jupiter Ecology Fund
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