# Ethical investment options in Ireland



## Brendan Burgess (13 Feb 2007)

_This is the text of an article which appeared in the February 2007 edition of Accountancy Ireland, the journal of the Institute of Chartered Accountants_

*Ethical Investment Options available to Irish Investors *

So you want to invest ethically? What does ethical mean to you? Are you happy just to avoid investing in companies which damage the environment or which manufacture tobacco? Or would you like to invest in companies which actually do some good? 

There are five ethical unit linked funds available to the Irish investor. These funds have different investment criteria. This article summarises the available funds and answers the questions most frequently asked by investors. We also look at the ethical ratings of Irish quoted companies and assess how ethical an ordinary unit linked fund investing in the Irish stockmarket would be. 

*Fund management charges *

The annual management charges on these funds vary from .5% to 2.875%, so selecting a fund with low charges is very important. Three of the funds are up-front and clear about their charges. I could not get a clear understanding of the charges of the  Friends First or Hibernian funds on their websites or in brochures. When I did get information by email, I found them complex and difficult to understand.  I would be wary of investing in any such fund. In contrast, the charges on the other funds were simple and clear. 

*Dolmen Butler Briscoe Green Effects Fund*

Most funds exclude companies which are in specified industries but the Green Effect Fund is ethically more proactive. It invests only in companies which are on the NAI - the Natural Stock Index. This is an index of around 25 shares which have very strong ethical principles. The companies on the index have to produce products which are used to boost the environment or human welfare, such as solar power or drugs for the prevention of HIV/Aids. Alternatively, they can be companies whose products are produced in a very ethical way e.g. The Body Shop or Severn Water.

Companies Involved in the following activities are excluded
• Produce or sell nuclear energy or nuclear technology
• Produce or sell arms
• Discriminate against social or ethnic minorities
• Manufacturing produce through child labour
• Production processes damaging to the environment
• Release genetically manipulated products

Charges: 2% initial charge and .75% per annum afterwards. 


This product has very good information online including details of companies in which it invests and charges. It also provides regular monthly updates.


Minimum investment: €5000

Website: www.greeneffects.ie 


*EBS Indexed Ethical Global Equity Fund *

The FTSE produces a range of indexes under the brand name FTSE4Good. These indexes are comprised of shares which meet the following criteria:

For inclusion, eligible companies must meet criteria requirements in five areas:
• Working towards environmental sustainability
• Developing positive relationships with stakeholders
• Up-holding and supporting universal human rights
• Ensuring good supply chain labour standards
• Countering bribery

Excluded Companies
• Tobacco Producers
• Companies manufacturing either whole, strategic parts, or platforms for nuclear
weapon systems
• Companies manufacturing whole weapons systems
• Owners or operators of nuclear power stations
• Companies involved in the extraction1 or processing of uranium

The EBS Indexed Ethical fund is 50% invested in the FTSE4Good Europe 50 Equities Index and 50% in the FTSE4Good Global 100 Equities Index.

There's a certain amount of overlap between the two indices so overall there are currently 111 companies, none of which is Irish.  Breakdowns are currently : 
Country - UK 30%, US 22%, France 13%, Switz 8%, Germany 6% and Others 21%. 
Sector -  Banks 25%, Pharmaceuticals 14%, Energy 13%, Telecoms 11%, Technology 11%, Other Financials 8% and Others 16%.

No initial charge. 1.5% annual management charge. Exit charges up to 5% if you leave within the first 5 years. 



*Bank of Ireland/New Ireland Smart Funds Ethical Equity Fund*

Bank of Ireland Asset Management Limited (BIAM) who manages these funds has a dedicated Ethical Committee which includes independent ethics advisers to provide guidance in the formulation of policy that determines the selection of investments for the ethical funds. BIAM also use EIRIS research to vet stocks bought, and to act as an independent audit of stocks held and withheld from the ethical funds. EIRIS provides independent research into the social, environmental and ethical performance of companies worldwide. 

Excluded companies:
The Defence Industry
Animal Testing for Cosmetics
Gambling
Contraceptives and Abortifacients
Tobacco
Pornography
Environmental Damage
Human Rights Abusers
Stem Cell Research

Investments in this fund include: AIB, Anglo Irish Bank and CRH.
Minimum investment: €5,000
Annual management fee: 1.5% 

Bank of Ireland Life has a Regular Savings Option which has a minimum contribution of €100 per month. In addition to the 1.5% management fee, you also pay a monthly contribution charge of between 3% and 5%. 
New Ireland has a Regular Savings Option where the minimum is €1,000 per month. The monthly contribution charges are slightly lower.

*Hibernian Socially Responsible Investment Funds*

Hibernian offer 5 ethical funds: a Managed Fund, a European Equity Fund; a Global Equity Fund, a High Yield Equity Fund and a Bond Fund.

The companies are selected by Hibernian’s sister company Morley Fund Management which has a team which specialises in ethical research. 

These funds avoid companies which "contribute to social and environmental problems; are involved in armaments, nuclear power, gambling, tobacco and pornography; are heavy polluters in the chemical and basic industrial sectors; contribute to climatic change, e.g. the automobile industry and extractive industries such as coal and oil; produce dangerous substances that cause cancer or other health problems; are involved in the exploitation of people." They select companies which promote positive change such as “providers of sustainable energy, providers of healthcare services and waste recycling services”.

There is no prominent information on their website or in their brochure on their charges, so I would avoid this product. 

Minimum investment: €5,000


*Friends First Stewardship Fund *

Investment criteria:
Invests in companies which display positive criteria including:

•     Supplying the basic necessities of life
•     Offering product choices for ethical and sustainable lifestyles, e.g. fair trade, organic.
•     Improving quality of life through the responsible use of new technologies
•     Good environmental management
•     Actively addressing climate change, e.g. renewable energy, energy efficiency
•     Promotion and protection of human rights
•     Good employment practices
•     Positive impact on local communities
•     Good relations with customers and suppliers
•     Effective anti-corruption controls
•     Transparent Communication

Avoids companies involved in the following:
•     Tobacco or alcohol production
•     Gambling
•     Pornographic or violent material
•     Manufacture and sale of weapons
•     Unnecessary exploitation of animals
•     Nuclear power generation
•     Poor environmental practices
•     Human rights abuses
•     Poor relations with employees, customers or suppliers.

 Minimum investment: €7,000

I don’t think that Friends First would be able to invest in itself as one of its investment criteria is “transparent communication”. This is what it says about the charges on its regular savings plan. I have no idea what this means except that they seem extraordinarily high. They are certainly not transparent: 

“The Stewardship Fund is also available on our regular premium “Smart Saver” plan. If investing directly through Friends First the client receives an allocation of 105% (varies according to commission basis) of the premiums for the first 3 years reducing to 98% from year 4 onwards. There is no bid/offer spread. The annual management charge is 2.875% reducing by 0.5% from year 6 onwards. Please be aware that early encashment penalties apply as follows: Up to year 4 = 5%, year 5 – 4% and year 6 = 3%. Again please be aware that charges may vary if this investment is taken out through a third party.”


*First Active Stewardship Fund*
This is the same as the Friends First Stewardship Fund but the charges are even higher. 

Which fund is the most ethical? 

This is very hard to answer. The Green Effects Fund is a positively ethical fund in that it invests in companies which do good as distinct from say the Bank of Ireland fund which avoids companies which do bad.  However, one of the Green Effects investments is in a Boiron which is involved in the “Research, development and manufacturing of homeopathic pharmaceutical products.”. My own ethical principles would not allow me to invest in a company which has anything to do with homeopathy, for which there is no scientific evidence that it has or could have any effect. 

And why avoid investing in companies which promote nuclear energy? Many environmentalists are coming around to the idea that it is far more environmentally friendly to generate power with nuclear energy than by extracting oil. 

There is a lot of inconsistency involved in ethical investing. Some people avoid investing in alcohol companies but drink alcohol themselves. Is it unethical to invest in Paddy Power but more ethical to invest in AIB which is probably a banker to many gambling and alcohol producing companies? Some charities stopped investing in Bank of Ireland recently because they had agreed to fund an investment in a publisher of pornography. The Bank of Ireland pulled out of the deal because of the negative PR. 

*How ethical are Irish quoted companies? *
If you look at the companies on the Irish Stock Exchange, they would nearly all appear to meet the ethical criteria of FTSE4Good or EIRIS. We don’t have companies involved in pornography, nuclear power, alcohol, tobacco or contraceptives. The only company which is in a prohibited sector would be Paddy Power which accounts for less than 1% of the index value. 

Take CRH as an example. It is one of largest companies and it’s involved in an industry which has a huge impact on the environment. As a shareholder in the company, I have raised concerns about their practices at AGMs. CRH produces a detailed Community and Social Responsibility Report which outlines its approach to environmental issues and lists the various ratings it receives. Despite my concerns, it is on the FTSE4Good index and is also included in the Dow Jones Sustainability Indexes which describes CRH as 

“CRH continues to rank among the sector leaders in overall CSR performance, and although there is still room for improvement, CRH makes good progress in meeting numerous sustainability challenges.”

Some people might avoid investing in Aer Lingus or Ryanair because of the contribution of airline travel to global warming. But to be consistent, the same investors would have to avoid travelling by air. Michael O’Leary of Ryanair, defended the airline recently by pointing out that because the newness of its fleet of airlines, they are the most fuel efficient in Europe. He also claimed that because of their flights are full, the harmful emissions per person per mile is the lowest of all airlines. 

So if you buy a fund which invests in Irish shares or if you just buy a selection of Irish shares, you would have a fairly ethical portfolio. For example, if  buy the ISEQ Exchange Traded Fund, you would pay an annual management charge of only .5% which is a lot cheaper than many of the other options.

*How do you buy an ethical fund? *

For most investment products,  you should get a quotation from an execution only investment broker such as www.ferga.com or www.myadviser.ie. They will often be able to set up the investment with lower charges than the standard products, resulting in more of your money being actually invested and less being deducted in charges.  They do this by arranging to receive less commission from the product provider than the standard product normally pays. This applies to all the products mentioned above except for the EBS. 

You probably should also get a quote from Friends First directly, as they may have special rates for people who apply directly. 

*Which of these funds has the best investment performance?* 

Past performance is absolutely no indicator of future performance, so this historical information is irrelevant. However, if the performance is equal, the difference will be in the annual management charges which, as we have pointed out,  vary from .5% to 2.875%. 

*Will the performance be reduced if you invest ethically? *

There is no evidence that the returns from ethical funds are any different from the returns on general investment products. You are unlikely to suffer a loss in returns by investing in ethical funds. 

There is some evidence that investing in vice funds i.e. funds which invest in tobacco, pornography and weapons outperform the market. 

*Are these funds adequately diversified?* 

Yes I think that they are. The most concentrated of these funds is the Green Effects Fund which invests in 25 companies. You can see the list of them on the website and they are fairly diverse in their interests. 


*Can you buy shares directly in ethical companies?*

As we have seen most Irish shares are included in the acceptable range of ethical investments. So you could buy a portfolio of Irish shares directly. 

I have been unable to find any reliable website which makes ethical information on publicly quoted companies available for free to the retail investor.

The favourable tax treatment of ETFs and unit-linked funds, probably makes it unwise for most people to buy shares directly. 



Brendan Burgess FCA is the founder of www.askaboutmoney.com the Irish consumer finance website. He is also an active environmentalist and is a previous Chairman of the Irish Wildlife Trust.


----------



## vipera1 (13 Feb 2007)

Brendan, I must congratulate you on a most interesting and informative article. Personally speaking, I am very much guided by the ethical merits of a company before I invest in them. Many thanks for some excellent advice and information.


----------



## ClubMan (14 Feb 2007)

Interesting article. The second sentence poses an interesting challenge - "what does ethical mean to you?". I would strongly disagree with the implicit categorisation of certain industry sectors as necessarily unethical by the relevant fund managers above for example. But then again I guess they are sticking their necks out and making certain value judgements there. I would also presume that industries that are secondary to the so called unethical ones might be allowed? For example - I work for a company which produces programmable logic chips that are compliant with RoHS and other environmental standards and which treats its employees very well while having a culture of generally not cutting costs by laying off employees. But the company makes most of its money from chips that are sold into space, aeronautics and military applications. Ethical or unethical? You decide...


----------



## Marie (14 Feb 2007)

Brendan thank you for that succinct and informative article.  In my experience lack of knowledge of how and where their funds will be used is a deterrent to small private investors who don't have sophisticated knowledge of stock exchanges and high finance.   It is reassuring that most companies on the Irish Stock Exchange appear to meet the ethical criteria of FTSE4Good or EIRIS.  Another dimension of stock-holding is having an input on direction and policy and a vote at AGM.


----------



## dam099 (14 Feb 2007)

Brendan said:


> The annual management charges on these funds vary from .5% to 2.875%,


 
But is it ethical to charge a management fee of 2.875%? (I know some will say if its disclosed up front then caveat emptor but that is a very high fee)


----------



## ClubMan (14 Feb 2007)

Well whatever about high charges that are clearly divulged the funds that involve obfuscated charging structures would surely be quesitonable on ethical grounds?


----------



## gonk (14 Feb 2007)

Does this kind of "ethical" investing really make any practical difference?

In almost every case, unless one is buying shares in an IPO or subsequent share issue, the money invested doesn't go to the company concerned but to the previous owner of the shares. So far as the company and its management is concerned, who the individual share owner is makes no difference, unless its a large institutional investor. In fact, you could make a case for a fund which deliberately invested in "unethical" companies with one of its aims being to influence the firms to do business more ethically.


----------



## Sarsfield (14 Feb 2007)

> There is some evidence that investing in vice funds i.e. funds which invest in tobacco, pornography and weapons outperform the market.


 
So where do I find me a vice fund?


----------



## gonk (14 Feb 2007)

Sarsfield said:


> So where do I find me a vice fund?


 
http://www.vicefund.com/


----------



## Brendan Burgess (15 Apr 2009)

Any updates on these options in Ireland? 

Darag had a post a few years ago which is interesting 

Brendan


----------



## Marc (9 Jun 2011)

Brendan

We have just launched a socially responsible portfolio which makes use of some new fund launches including socially responsible emerging markets developed equites and real estate funds.

I have also written a White paper on the subject which is aimed at institutional investors such as charities and religious orders but may be of interest to private individuals. 

Marc


----------



## joe sod (10 Dec 2019)

There seems to have been a lot of questions on ethical investing on other investment posts but strangely no dedicated thread since this old one from 2007. I think the financial crash in 2008 obviously quenched the interest in this issue from most people. Maybe it's only something that generates interest when economic activity is good and people have money again.


----------



## Steven Barrett (10 Dec 2019)

ESG (environmental, social and governance) funds are very much in vogue at the moment. You have to distinguish though between ethical funds and sustainability funds. They are not the same and have different criteria. I will be writing about them in my blog next week. I'll paste it on here when I've published it. 


Steven
www.bluewaterfp.ie


----------



## Marc (28 Apr 2021)

A new EU regulation came into effect on March 10th 2021 which requires all Irish financial advisers to consider "sustainable investing"

The Sustainable Finance Disclosure Regulation (“SFDR”) effective on the 10th of March 2021 was introduced by the European Commission alongside (the “Taxonomy Regulation”) and (the “Low Carbon and Positive Impacts Benchmarks Regulation”) as part of a package of legislative measures arising from the European Commission’s Action Plan on Sustainable Finance.

The SFDR sets out harmonised rules on transparency and aims to include environmental, social and governance (ESG) “sustainability” considerations and risks in the decision-making process of investors and asset managers in a consistent manner across the EU financial services sector. A sustainable investment product is where a product is sold as promoting environmental or social characteristics. It is envisaged that greater transparency and sustainability-related information will enable investors to compare financial products and to make informed investment decisions about ESG products.

A key focus of the European Commission Action plan is Sustainable Finance and recital 19 of the regulation state;

“_The consideration of sustainability factors in the investment decision-making and advisory processes can realise benefits beyond financial markets. It can increase the resilience of the real economy and the stability of the financial system. In so doing, it can ultimately impact on the risk-return of financial products_.”

You may not know this but Ray McNicholas who founded our other business "Ethical FInancial" was instrumental in bringing the very first "green" fund into Ireland in 1997 when he personally managed to get  Friends First to launch the UK Stewardship fund in Ireland.

Our latest guide for investors is attached

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie


----------

