Ethical Investing needs a definition
Half of UK investors are ‘ethical investors’, but despite a desire to invest responsibly, not enough information is available for them to make informed decisions, according to research from TD Direct Investing.
The research has shown that 64% of UK investors are planning to invest in ethical funds in the next few years. However over half (57%) said they need more information about the performance of these stocks before they will invest and 42% said they have difficulty finding any details about specific shares within a fund.
John Tracy, Head of TD Direct Investing Europe says: “There is a need for the definition of ethical investing to be fine-tuned. There is a paradigm shift in the UK, with investors wanting to know more about the performance of ethical funds, but also wanting the ethics of the business in which they invest to reflect their own. However, there remains a grey area around what ethical investing actually means and the information available to investors”.
78% of UK investors are more likely to invest in a company that demonstrates ethical practices, so there is certainly an appetite for funds that operate in this sector. The number of trades made by TD Direct Investing customers in ethical funds has increased by 84% in the last year, with 94% of TD’s ethical funds increasing in value in the same period, some by as much as 17%.
That said, the research also found that half of UK investors accept that there may be a financial cost to investing in ethical funds, with two in five believing their ethical investments result in lower returns. However, despite this, respondents said they are still keen to push ahead even if it means taking a perceived financial ‘hit’ from investing in an ethical company. Tracy continues: “The industry needs to be clearer about the definition of ethical investing and the funds themselves should provide more detailed information about their investments. It is clear that investors want to be able to make their own informed, educated decisions about which ethical investments they choose.”
Like the Rockefellers, who are divesting their interests from fossil fuels over climate change concerns, the UK’s ethical investors are actively avoiding certain sectors. 29% have avoided controversial industries such as tobacco and gambling, 21% have chosen to invest in stocks that have a positive impact on society and 15% have chosen not to invest in companies with negative impacts to society.
Interestingly, in an anomaly that bucks this trend, a mere 6% of ethical investors have specifically avoided the oil and gas industry despite its negative environmental connotations, indicating that financial returns even for ethical investors sometimes outweigh the moral drivers behind investing. The research revealed that 50% are more likely to invest in a company in the renewable energy sector, however only 22% would invest in renewable energy if they could get better returns from oil and gas stocks.