Principles and profit are given the green light

Principles and profit are given the green light

CIS Sustainable Leaders is up 29.7% over the past year, and ethical funds from Jupiter, Aegon, Legal & General, Standard Life and F&C have all earned gains of 20% or more for investors.

Much of the gain has come from investing in renewable energy companies whose share prices have soared amid growing concern about climate change.

Take the example of Clipper Windpower, a US wind turbine maker, which is held in funds such as Jupiter Ecology. A year ago it was trading at 364p but this week hit 660p, a gain of 81.5%. RPS Group, an environmental consultancy, has seen its share price jump from less than 200p last year to 314p this week.

Green and ethical funds used to be defined by what they didn't invest in - areas such as arms, gambling, the fur trade, tobacco and pornography. But today they are becoming better-known for investing in tomorrow's growth companies. For example, CIS invests in Cranswick, which supplies premium and organic foods to brands such as Duchy Originals. Since June last year its share price has roared up from 600p to 1012p.

Nine out of 10 ethical funds performed better than the FTSE All Share index during 2006, and three-quarters got into the top quartile of the unit trust league tables. In total, there are now almost 90 ethical funds available to UK investors, with 10.....continued below

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All of the major ethical and environmental funds can be put into a shares Isa, which means that up to £7,000 can be invested tax-free. "Over the past year we have seen a three-fold increase in interest in ethical investment," says Mr Robertson. "Growing concern over climate change, fair trade, poverty and human rights means that more and more people are thinking about the impacts their investments can have."

The latest to come on to the market is the M&S Money Ethical fund, which will be jointly managed by Jupiter and HSBC.

Emma Howard Boyd, Jupiter's head of socially responsible investment, says: "There is no doubt that an increasing number of individuals are wanting to make a difference through their purchasing decisions, and this new fund will allow M&S customers to do so through their investments."

The big daddy of the sector is Friends Provident Stewardship range, managed by F&C. Its funds under management now top £3bn. Jason Hollands, of F&C, says: "It has been shown that ethical funds can outperform their unconstrained peers and have become part of the mainstream.

"It used to be the case that financial advisers would never ask their clients about ethical options, but now they do so as a matter of course. And the old objections about risk and volatility are wrong; it's the big oil stocks which are some of the most volatile around, and you won't find them in ethical funds.

A climate change as shares soar