Research carried out by Holden Partners, into the top ten holdings of ethical and socially responsible investment (SRI) funds reveals that very few invest much in tackling climate change.

As a result, investors in SRI and ethical funds, who were hoping to support the low-carbon economy, may find that they are predominantly buying into multinationals more associated with being part of the problem than part of the solution.

The study, which coincides with the UK’s first National Ethical Investment Week, found that most SRI and ethical funds’ top ten holdings are surprisingly mainstream, with names like Vodafone and Royal Bank of Scotland occurring time and time again. However, many also have holdings in large mining corporations as well as BP, Shell, Total and other oil majors.

By contrast, there are a number of ‘pure play’ environmental investment vehicles available with 100 per cent exposure to environmental solutions providers.
These include listed funds investing in worldwide-listed stocks, such as Impax Environmental Markets Trust and BlackRock New Energy Investment Trust; AIM-listed funds investing in private companies such as Low Carbon Accelerator and Ludgate Environmental Fund; and private funds available to retail investors such as Triodos Renewable Energy Fund.

Mark Hoskin, specialist ethical and environmental independent financial adviser at Holden Partners, says, ‘The environment is the theme of the 21st century. If ethical funds aren't investing in the solutions to these problems, how can they claim to be ethical?

‘The two questions that should be asked are these: are they providing investors with what they were hoping for – investment in companies which are improving the environment and making a positive contribution to society? And are they benefiting from arguably the most exciting investment opportunity of the decade, investment in clean-tech or environmental pure-plays? Environmental investment is unlikely to remain a niche for long but it will evolve to become a key theme for all funds.’

Socially responsible investing is already a recognised and established sector, with an estimated £10 billion invested in retail funds and £80 billion in occupational pension schemes.

However, an increased interest in the environment, coupled with the recognition that climate change presents a compelling business opportunity for those who can mitigate it, means that SRI funds must be explicit in addressing climate change concerns as an ethical issue if they are to remain competitive.

Hoskin adds, ‘Amid the turbulence of the credit crunch it is tempting to think there is nowhere to put one's money; property is about to crash, the stock market has crashed, bonds look risky and even the building society seems unsafe. But the growth story in environmental investment, combined with rising oil prices, concerns about energy demand growth and security, legislation and global climate change concerns make environment investment a very attractive option.’