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Financial services see a green future

18th April 2007
By BBR Staff Writer

Environmental investment propositions have been receiving increasing attention from investors recently, and this looks set to continue. Indeed, such take-up of green investments is not a temporary blip on the investment radar, and they are likely to become more popular as evidence of environmental degradation escalates and investors begin to feel the burden of environmental responsibility.

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The roots of ethical investment can be found in the religious movements of the 19th century, such as the Methodists and the Quakers. In the modern sense, ethical investments began in 1971, following the formation of the Pax Fund in the US, launched in opposition to the Vietnam War. However, it is only within the last 12 months that these investment propositions have achieved notoriety, which has largely occurred on the back of more widespread concerns surrounding the effects of global warming, along with recent media coverage.

No composite figure as to the number of ethical investors exists, but it is glaringly apparent that an increasing number of investors are seeking to invest their money ethically. The European ethical wealth management market is now worth over E1 trillion, while the growth rate is in excess of that experienced by overall European equity markets. The UK is the largest market in Europe for such products, with approximately 60 to 80 ethical retail funds currently on offer, worth around GBP3.8 billion in total.

Major banks and financial services companies are making proactive attempts to be more 'green,' some of which create and market ethical propositions exclusively, while others offer them as an alternative to propositions focused solely on performance. Financial services firms that recognize the potential of socially responsible investments tend to offer funds in support of the environment. However, the popularity of a green/ethical tag has now spread even further to penetrate the credit card market, such as Rabobank's Rabocard, which contributes towards carbon offsetting programs via purchases made on the card. Others, such as Barclays, take a more direct approach by employing a carbon-neutral process during manufacture of the card itself.

Greener business practices

Aside from the plethora of financial products now available, much of the focus in financial services has now shifted to devising methods by which they themselves can adopt greener business practices.

There are a variety of options at a company's disposal to strive towards carbon neutrality, wherein carbon emissions are counterbalanced by carbon savings, creating a point of environmental equilibrium. The diversity of such options includes everything from practical micro-level initiatives such as the use of low-energy lighting and recycled paper to using biodiesel fuels for company transportation or adopting a more rigorous approach to building design and compliance with building emissions standards.

Judging by the ever-increasing interest in green financial services, this trend is sure to continue, as more institutions become aware of the importance that consumers attach to a proactive green approach.

Positive future for ethical financial services

According to calculations made by the UK Department of Work and Pensions, the number of ethical savers is set to increase considerably over the coming years, owing to growth in the number of people saving in the personal accounts system. Government calculations indicate that up to 10 million people are expected to be using the personal accounts system for saving purposes, with 20% of those savers estimated to be looking for additional investment choice around ethical saving propositions.

Many financial institutions are already poised to benefit from the anticipated growing demand for more ethical products. Any institution that offers ethical funds/services in addition to their standard range of products and is perceived to embody a well-balanced, ethical approach will be in a prime position to take advantage of a rapidly growing, niche market area.

The future of the green investment space is likely to hinge on the degree to which investors heed the advice distributed through media and governmental sources regarding the future of climate change, as well as other environmental concerns.

It is fairly clear that the current apprehension towards the future of the environment has not reached an apogee and it is for this reason that investors, as well as society as a whole, need to distinguish the difference between the empty rhetoric of espousing environmental activism and the praxis of leading an environmentally conscious lifestyle. Now is not a time for reflective contemplation and, if the importance of an ethical approach to investment is recognized throughout society, then this is likely to have a positive bearing on the growth of green and ethical fund investment over the coming years.
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