Is ethical saint or sinner?

Is ethical saint or sinner?

Co-op Bank was next, pioneering ethical banking, followed by pension funds which excluded arms companies and tobacco manufacturers. Assets managed in ethical unit trusts have soared to nearly £5bn.

But while the fund managers celebrate their success in hauling in so many ethical investors, what has been the impact on the real world? Has ethical investment worked?

Firms running ethical money insist their results are great. But critics say the high costs and investment restric tions associated with Socially Responsible Investment means ethics loses hard cash.

Not so, according to IFA Giles Chitty at SRI specialist Charcol Holden Meehan.

"The research is all inconclusive. You can cut it to produce the answer you want.

"There are poor funds and great funds in SRI, just as elsewhere. But the average is roughly the average of all trusts. The real question is whether SRI does any good over the long term," he says.

Investor pressure means avoiding shares in a comp-any if it pollutes, becomes involved with a repressive regime, or employs child labour. And it means not buying shares in alcohol, guns, tobacco, and other "sin" stocks.

More recently, it has meant "engaging" companies rather than just avoiding them. Stockbroker Gavin.....continued below

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"SRI is making a difference because it can bridge the gap between capitalist interests and ethics. It allows you to think through the theology of issues so you realise everything is shades of grey. We now realise that we can nudge companies in the right direction, even if they are short of perfection," he says. Shell, he believes, still has a long way to go in corporate governance, pollution and Nigeria. "But it has made some progress in these areas.

The first stage must be a company becoming aware of the issues. But it is not just SRI. The oil industry has seen consumer boycotts of Exxon (Esso in the UK). CEIG has also had success in changing hardwood purchasing policy at builders' merchant Travis Perkins, and in preventing major stores opening on Christmas Day." Karina Litvack, who heads the SRI unit at Isis, the investment managers controlling Stewardship, believes companies are now much more willing to listen.

"We are talking to Tesco on sustainability. We realise it has an obligation to get the best deals, but what about the long term if this puts farmers out of business?" she says. "We want to engage in discussion but, ultimately, you have to sell if you fail to convince."

But she acknowledges that not every holding, even in a heavily excluding fund like Stewardship, will meet with universal approval.

"We have shares in doorstep lenders such as Provident Financial and Cattles, partly because we can't hold insurance companies or most banks. And they have a role with those suffering financial exclusion.