Barchester Green Investment Limited (Barchester), which bills itself as the UK's leading ethical and environmental financial adviser, released their list of the current 'Heroes and Villains' amongst the ethical and environmental funds.
Jonathon Clark, Director of Barchester Green, explained, "Twenty years ago, Barchester used to publish a list for our clients of 'First, Second and Third Division' ethical and environmental funds. Now, owing to environmental disasters, and an increasing awareness of environmental and CSR issues, our clients are asking for these listings again. Today's investors with non-financial criteria differ significantly from those in the '90s in that the major issues then were political and social e.g. apartheid and armaments, whereas now the emphasis is more on seeking positive and sustainable solutions to environmental problems.
"Our classification of companies is not dependent on financial performance but on how much effort is put into seeking out truly ethical funds for investment and how willing the fund manager is to discuss the investment strategy. A fund with its own research team will score higher than one dependent on EIRIS (Ethical Research and Information Service - http://www.eiris.org) research and more highly still compared to funds which rely on others' research and literature, or whose major holdings appear to differ little from mainstream funds."
So who are our 'Heroes and Villains', and why?
1. Jupiter Ecology
2. The IM WHEB Sustainability Fund
3. BlackRock New Energy Technology
4. Aegon Ethical Equity Fund
5. Impax Environmental Leaders
1. Zurich Environmental Opportunities Pension Fund
2. Jupiter Environmental Opportunities - OEIC
3. Marks Spencer Ethical - OEIC and ISA
4. Scottish Widows Environmental Investor
5. Prudential Ethical
The fund which comes top of the list, Jupiter Ecology, is a longstanding environmental fund launched in 1988 and has had the same fund manager, Charlie Thomas, since 2003. Investment is spread between the UK, Europe, North America and the Far East. Nothing is invested in the financial sector (although at the time of writing 10% is in Money Markets, pending investment) - it actually is a fund which invests in what it says. It is also one of the very few environmental funds which also applies ethical as well as environmental criteria to its stock selection.
Of the other funds topping the list, the IM WHEB Sustainability Fund not only invests in companies offering alternative energy solutions, but also in companies which are concerned with the provision of clean drinking water, through purification and conservation technologies, and those providing healthcare for a globally aging population.
BlackRock New Energy Technology specializes in solar, wind and wave power. Aegon Ethical Equity Fund's strength lies in adhering to strict ethical criteria in choosing its investment portfolio and, significantly, excludes banks (which 'bucks' the current trend).
Finally, Impax Environmental Leaders focuses on three key environmental sub-sectors: alternative energy, water treatment, pollution control/waste technologies.
Barchester's says their new ranking of environmental funds shows that what the worst offenders have in common is top holdings which have little or nothing to do with ethical and environmental investment; in fact, in many cases, they contain stocks which ethical investors would certainly wish to avoid.
The fund at the bottom of the list, Zurich Environmental Opportunities Pension Fund, has a 7.6% holding in Shell, a 5.9% holding in BP and a 4.3% holding in Rio Tinto, all of which would put this fund high on an environmental investor's blacklist. BP may be developing alternative energy sources but this is a miniscule part of their business compared, for example, with the pollution caused by the Deepwater oil spill.
Given that most ethical investors want to avoid companies with serious health and safety issues it is difficult to see how these companies can possibly be included in a fund with this name. The remaining companies in Zurich's investment portfolio seem to embody little (if anything) in terms of offering environmental opportunities - HSBC, Vodafone (beloved by almost every fund manager, ethical and non-ethical), AstraZeneca, Standard Chartered, GlaxoSmithKline and Tesco. They may or may not be ethical but they certainly are not environmental.
Following closely behind Zurich Environmental Opportunities, of the remaining 'Villains', Jupiter Environmental Opportunities (OEIC), whilst not holding funds in oil and mining companies, has a huge 10% of its funds invested in HSBC, Lloyds and Barclays.
MS Ethical (OEIC and ISA) is a brand normally associated with a generally positive record in corporate social responsibility (CSR) but turns out to have 4.6% invested in Shell, 4.3% invested in BP and other funds invested in GlaxoSmithKline, AstraZeneca, HSBC and Standard Chartered. This fund doesn't claim to be environmentally-friendly, but this really doesn't even meet investors' expectations of ethical investing.
Scottish Widows and Prudential both have more than one third of their funds in financials. Also, the restrictive attitude of Prudential, as a company, towards those wishing to transfer their holdings away from the Teachers Superannuation scheme is curiously out of sync with the open contracts towards which most companies have moved over the last ten years.