Charities need to be wary of 'ethical' investments, warns Gina Miller's company

A report from SCM Direct says several major ethical funds are investing 'material amounts' in tobacco, alcohol, gambling and defence stocks

Charities that have tried to invest in ethical investment schemes may have been misled, according to a new report by Gina Miller’s wealth management company.

The report, Greenwashing: Misclassification and Mis-selling of Ethical Investments, produced by SCM Direct, says that several major ethical funds are actually investing "material amounts" in tobacco, alcohol, gambling and defence stocks.

It says there is a lack of rules and regulations about what can be considered an ethical investment fund and calls for an urgent review of the ethical investment sector by the Financial Conduct Authority.

In recent years many charities have moved towards ethical investment options to ensure that their financial investments are in line with their charitable aims. In March a group of charities including the RSPB and the Joseph Rowntree Charitable Trust called on the charity tribunal to clarify whether charities should be legally obliged to do so.

The move came after a number of controversies involving charities investing in companies that conducted activities antithetical to the charities' aims, such as the Church of England’s investments in the payday loan firm Wonga, which the church ended in 2013.

But the report from SCM Direct says that even charities trying to invest ethically might have unknowingly given money to companies they wanted to avoid.

The report says it recognises that it is not uncommon for environmental, social and governance funds and socially responsible investing funds to have "small exposures to stocks within the tobacco, alcohol, gaming and defence sectors".

But is says it "was surprised to find several funds in which the total amount invested in such activities amounted to 5 per cent or more of the fund".

And the report says that many funds that claim to invest in ethical stocks are simply buying UK government bonds.

The report says that the data being used by companies to select ethical stocks "appear almost random, lacking reliable benchmarks or genuine transparency".

To resolve these issues, the report calls for common data accounting standards for ethical investment products to be internationally agreed so they can be independently audited, and for investors be briefed every six months on exactly where their investments are going.

It says the FCA should urgently launch a review of the UK's ethical investment sector and consider enforcement action against funds whose marketing materials are found to be misleading clients.

Miller said the research showed investors were being hoodwinked.

Her husband and SCM Direct co-founder Alan Miller compared the ethical investment sector to the Wild West and accused the FCA of being "asleep at the wheel, failing to protect the British public".

In a statement, he said: "It is ironic that clients who have sought ethical investments face unethical behaviour from investment firms purporting to have principles. 

"We are certain the average investor would be shocked by the composition of many ethical investment products, which often have significant exposures to tobacco, alcohol and defence stocks, and plain vanilla UK government bonds.

"In terms of government bonds, the UK government receives substantial revenues from the tobacco industry and the gaming industry, and has exposure to both nuclear weapons and nuclear power."

In March, the Millers filed an application to close their charity, the True and Fair Foundation, which produced several controversial reports about the efficiency of the charity sector, one of which was dismissed by the National Council for Voluntary Organisations as having "wilfully misrepresented the facts".

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