Robo-adviser, Nutmeg seems to be the latest UK robo-adviser offering an ethical option to investors. Is this a sign that ethical investing is gradually moving into the mainstream?

Also should advisers be embracing themes like ethical investing, in order to attract gain a younger client base?

Iona Bain, founder of the Young Money Blog says: “Research clearly suggests ethical investing is more of a concern for young people than older people. It’s a complex area though.

“Young people are very conflicted about what’s “ethical” and what isn’t. At the best of times, it’s a subjective matter but today’s information overload and fast-changing world makes it harder than ever to decide – what is a moral investment? ESG is also very poorly understood, nascent and ill-defined within financial services, so how are young people supposed to grapple with it?

“But ESG when applied comprehensively and intelligently could be a game changer. Young people need to feel their investment gives them a say that it’s helping to hold companies to account. That’s perhaps the most powerful theme you can pursue in a discussion on ethical investing. The old concerns around tobacco, alcohol and climate change may still be relevant, but you’ve got to a lot broader in your considerations – tax avoidance, poor pay, rough working conditions, gender pay disparity.”

Supply matching demand

According to independent financial research and consumer insight consultancy BoringMoney.co.uk, activity on the supply side is matched by demand on the consumer side, with particular interest in sustainability and ethical investing from younger investors and women.

Data from Boring Money’s Ethical Investment Report, across the four robo-advisers which offered ethical portfolios to UK investors as at October 2018 showed the following: the average age of an ethical portfolio holder with robo-advisers is 35 – which is 4.5 years younger than average portfolio holder; the average robo-adviser customer is eight years younger than the average ‘traditional’ customer (41 years old vs 49) and finally women are more interested in ethical investing than men – 32% say it is very or extremely important to them compared to 14% of men.

This data is reaffirmed by Julia Dreblow, founder of SRI Financial Services, in a recent online debate with the editor of Professional Adviser, Julian Marr, she says: “The whole theme of Environmental, Social and Corporate Governance (ESG) has grown in popularity.

“There are a lot of older investors who say 5, 10, 20 years ago weren’t interested in climate change and pollution, but have seen so much of it on the news, that they understanding that things are changing and recognise what is happening to the planet, so we shouldn’t necessarily write off older investors, they are just less naturally inclined that way.

“The other group of investors are women. There has been a lot of research by UKSIF showing that women are terribly served by the financial services community, and also research highlighting that women care more than men when it comes to what they invest in.”
It could be argued that ethical investing is moving into the mainstream with robo-advisers and asset managers taking notice of investor demand for this area.

Holly Mackay CEO of BoringMoney.co.uk, says: “The idea of avoiding certain sectors makes many people uncomfortable, as it is nuanced and rarely as simple as one thing being ‘good’ and another being ‘bad’. We do not like the idea of having someone else’s moral code shoved down our throats. Arms and weapons, tobacco and gambling were consistently called out as sectors to avoid. Over 60% of current investors expressed a desire to avoid these. Other sectors were more controversial.

“However, if the idea is turned around and people are introduced to the idea of using their money to support positive change (rather than to withhold it from ‘bad’ sectors), this is a universally more popular approach. Healthcare, green energy and sustainable agriculture are the three biggest areas where people would like their money to be put to positive use.”

Sabuhi Gard is an investment writer for Incisive Works

Further reading on this topic:

Millennial Money: ‘Anyone not taking on younger clients is closing down’