In Britain, Ethical Investing Movement Catches Fire; Big Inflows to 'Wind Fund'

AFTER a modest start, ethical investment in Britain is gathering momentum.

But the concept of tailoring investment decisions to mesh with social conscience in such areas as the environment, animal experimentation, tobacco, or liquor is stirring a lively backlash. Some academics say the movement's definition of "ethical" business is based more on fad than valid value judgments.

"There is no doubt that the country's major finance houses are under growing pressure to respond to the moral concerns of their clients," says Peter Webster, director of London's Ethical Research and Information Service, which advises companies and investors on the placement of funds.

He cites the success of the Manchester-based Cooperative Bank in adopting an ethics-based stance on such matters as the use of animals in cosmetic research and the sale of weapons to undemocratic regimes.

"The larger banks may differ in their enthusiasm, but they are all having to realize that more and more customers want to know what [their] investment money is used for," Mr. Webster says.

"The Co-op," as it is known to its customers, announced a 34 percent jump in pre-tax profits to $56 million dollars in March.

The bank has opened an "ecology center" at Salford, near Manchester, to harness the research skills of four neighboring universities on behalf of businesses keen to build the ethical factor into their commercial activities.

The center has already carried out trial projects with a number of companies. One customer is a Manchester metal-door factory aiming to cut airborne emissions during manufacture.

"Businesses can now access environmental help and advice and thus reduce processing costs and tackle pollution," says Terry Thomas, the Co-op's managing director. Their environmentally sustainable products can then be sold at a premium, he says.

Triodos, a Bristol bank that lends only to projects with social and environmental aims, reports increasingly brisk business. It has been stimulated, according to the bank's Susan Jenkins, by the collapse in 1995 of Barings Bank, where many charities had held their funds, and the advent in the same year of Britain's National Lottery. The lottery has drawn money away from charities, forcing some to borrow funds. Many charities preferred to borrow from "ethical" banks. Triodos, instead of depositing charities' funds in pooled funds that could be used for unspecified purposes, allows its clients to determine the projects in which money is invested. Shortly before two of Britain's largest electricity utilities were privatized, Triodos created a Wind Fund to finance renewable energy projects. It has proved successful at attracting investment, the bank says.

A survey by Friends Provident, a British fund management group, showed that a large majority of investors want to feel that their money is being used in non-harmful ways. The study says ethical investing is a rapid growth area for individuals. "People want to know where their cash goes," a group spokesman said.

But the upsurge in ethical investment has provoked a backlash that may reflect the concern of large banks and other finance houses of losing business to more ethically aware finance houses.

The Social Affairs Unit, a think tank supported by funds from the ruling Conservative Party, has just published a report contending that the term "ethical" has been "largely self-awarded by those who use it."

Ethical investment, says Peter Hodgson, an Oxford University physicist and one of the authors of the report, "simplistically divides products and industries into good and bad," whereas ethics is "about careful judgments on what people do with products." Referring to the nuclear industry, which most ethical funds eschew, Hodgson says that to suggest it is totally bad is "absurd."

Webster of the Ethical Research and Information Service retorts that it is "odd to say that some commercial activities or products cannot be good or bad in themselves."