Councils lose money by not investing ethically

Council pension fund's holding of shares in BAE Systems brought a poorer return in 2005 than if the money had been put into ethical investments.

Growth in the FTSE4Good Global 100 index, a leading tracker of ethical investments, was more than 50 pct greater in the past 12 months than the rise in BAE shares. The usual Council excuse is that the pension fund has to achieve the best possible investment returns for its members. These figures showthat investing in BAE makes poor investment sense as well as being immoral. BAE shares ended the year 10.6 pct higher than a year previously, as institutional investors cynically welcomed the government's decision to order the Serious Fraud Office to end its investigation into bribery allegations against the weapons manufacturer. However, the FTSE4Good Global 100 index did much better, surging more than15 pct during 2006, justly rewarding people who chose to invest in a principled way. Some other measures of ethical investment even outshone theFTSE4Good Global index, depending on the method of calculation. The DowJones EURO STOXX Sustainability 40 has soared more than 26 pct in the pastyear. The FTSE4Good Global Index achieved a similar outperformance against theFTSE 100 index of leading UK shares, which gained about 10 pct in 2006. The more narrowly-focussed FTSE4Good UK index also did better than the FTSE 100,with an 11 pct leap, despite the limited number of companies in the UK from which the index's components can be selected.

The UK has trailed behind other European countries in developing ethically acceptable and environmentally friendly industries, undermined by attitudes such as that of the Barnet Council pension fund. This means that Britain is still lagging behind in obtaining the economic benefits that such industries are now bringing to more forward-looking countries, both in terms of job creation and return on investment. For instance, Denmark is home to Vestas Wind Systems, the world's biggest manufacturer of wind turbines. Vestas employs 11,900 people and has seen its share price more than double this year, to 229 euros from 104.5. If Council pension funds adopted a more ethical policy, such as the UN guidelines, it could achieve a double benefit of improving the fund's investment returns and, if it invested in appropriate UK companies, it could help encourage faster growth in ethical business sectors in this country.

Council pension funds should to scrap their current immoral investment policies and adopt the United Nations Principles for Responsible Investment.