14/11/2006

10 Years of – Ethical From the Inside Out

Leading investment house, Standard Life Investments this year celebrates the 10 th Anniversary of its Ethical Investor Survey. The only ethical fund provider to survey its investors on an annual basis and to be guided by investor views in the development of ethical fund criteria, Standard Life Investments found that environmental issues top the list of investor concerns.

This year's survey was issued to a random sample of 4,700 of over 30,000 investors in Standard Life and Standard Life Investments' ethical funds. 25% of the 4,700 responded to the survey – a response rate that indicates that ethical investors have a high level of interest in expressing their views¹.

The survey, which asks investors to rank the issues of most importance for an ethical fund to favour, found that the number one preference of investors is to favour investment companies that encourage, maintain and improve the quality of working conditions in their global supply chains. The second and third issues to favour are investment in companies that are producing or providing products or services which control pollution, and the development or use of renewable energy.

The survey also asks investors to rank the most important issues to avoid. Consistent with their preference for investing in companies that are working to improve working conditions in their global supply chains, investors first priority is to avoid investment in companies operating in countries with poor human rights records when the companies themselves do not have good policies on human rights. The second and third most important issues to avoid are the production or supply of weapons for military use and investment in companies that clear tropical forests.

Consistent with results in previous years, investors rated environmental concerns² highly, both in terms of issues to favour and issues to avoid.

Julie McDowell, Head of Socially Responsible Investing Research and Secretary of Standard Life Investments' Ethical Committee, said:

"While screened funds regularly avoid investment in alcohol, tobacco, weapons, nuclear power and animal testing - the interesting concept is actually setting the whole policy. Who decides what is ethical and what is not? In 1997, we decided to get investors and intermediaries involved in setting out our ethical policy, so by questioning our investors about their concerns, we are able to adapt our policy and closely align it with their views and opinions.

"An interesting question in the field of ethical investing, about which there is no general consensus and little if any research, is whether companies should continue to fail ethical criteria even when unethical activities ceased several years ago. The survey asked investors to indicate the number of years that should pass before the company is an acceptable investment. Over 75% of respondents replied that by three years after the activity stopped the company would be acceptable. We will use these results to consider how we might be able to apply ethical criteria in the future.

"Strong performance across the full range of our ethical fund range indicates that our criteria methodology works well both in terms of performance and in presenting a fair reflection our investors' concerns."

The Standard & Poor's (S&Ps) 'A' rated OEIC Ethical Fund has returned top quartile performance over one, three, five and seven years³. This March, the fund won 1st place in the 'UK Marketed Class - Ethical/SRI Europe Sector' over five years and out of 15 funds for outstanding performance at S&Ps UK Fund Awards. The Ethical Corporate Bond Fund, which also has an S&Ps 'A' rating, returned 26th percentile performance since launch in November 2005⁴.

The Life Ethical Fund has returned top quartile performance over one, three and five years⁵ and the Pension Ethical Fund, which has input from Stuart Fraser on European Equities and Alasdair MacLean on Corporate Bonds, has been top decile over one, three, five and seven years⁶.

1 Source: DMIS response rate survey: the average response rate for a non-incentive paper based survey would be 3.8%
2 The survey examines a range of investor views on issues including community involvement, employment, corporate governance, positive products and services, social impact of companies, sourcing policy, alcohol, gambling, genetic engineering, intensive farming, military, pornography and adult films, tobacco, human rights and animal testing
3 Standard & Poor's Micropal, bid-bid – 1 November 2006
4 Standard & Poor's Micropal, bid-bid, 1/11/05 - /1/11/06
5 ABI UK All Companies – 1 November 2006
6 ABI Balanced Managed – 1 November 2006