Going green Last Updated: 2:52am GMT 09/02/2008

Green investment is a grey area – with even airline stocks appearing in 'responsible' funds, asks Paul Farrow

Telegraph.co.uk/investing

Read more of Paul Farrow's columns

I'd like to think I have a green side. I don't own the must-have hybrid car, the Toyota Prius, but I do drive a diesel which is marginally better than petrol.

I may not have got to the stage of recycling my bath water but I do recycle my rubbish.

Like most of us I check the labels on cartons and food packets for a pair of those swirling black arrows. If there is, into the recycling box it goes and I can sleep easy knowing I am doing my bit for the environment.

Or am I? Every week the box comes back still half full of cartons and packets that are supposed to be recyclable but are seemingly not. It is as though my borough is paying lip service to the notion of being green.

They are not the only ones. It's officially cool to be green so banks, lenders and fund groups have been dreaming up ethical options for customers. Whether it's planting trees on behalf of customers or abandoning paper statements, they are desperate to show they really do care.

But you do wonder – even Barclaycard admitted last year that its ethically minded Breathe card was jumping on the bandwagon.

It hasn't always be cool to be green. Take fund management groups – most used to scoff at green investing. There used to be just a smattering of funds available to the ethically conscious investor – now we have more than 50 to choose from.

When a colossal brand such as Virgin launches a Climate Change fund, as it did late last month, you know that green is a sure-fire way to win consumers over. When the first ethical funds appeared in the early 1980s a fund manager would not typically invest in stocks if they were associated with industries such as tobacco, brewing, armaments, oil or pornography.

But now the vast majority of green funds focus on "socially responsible investment", or SRI as it is known. Rather than screen out stocks, funds that follow the SRI route take a more positive approach, investing in companies that adopt good environmental and social practices, regardless of sector.

Naturally this more proactive approach means that companies that would not otherwise be included on some of the strictest funds can be included in so-called ethical portfolios.

Oil companies, for instance, are typically excluded from green funds – many extract oil in countries such as Venezuela and Kazakhstan, where human rights exploitation occurs. But a stock such as Cairn Energy could count because its fields are in Bangladesh and India, which pass its labour and human rights criteria.

In short, the burgeoning ethical investment fund arena is becoming a minefield. It's amazing the types of stocks held in funds - many of them may not be what your ethics dictate.

Climate change funds are the latest wheeze and if you are warming to their credentials you might want to cast your eyes over Holden & Partner's Guide to Climate Change Investment.

The firm analysed the top 10 holdings of every SRI fund available to private investors in the UK.

Most had only insignificant holdings in clean-tech or environmental companies – instead banks and telecoms companies dominated. Only one out of 58 funds analysed claimed to have more than 50pc of its portfolio in environmental stocks.

Indeed, Virgin has admitted that many stocks in its fund will invest in companies that make a large contribution to greenhouse gases, and this could include airlines.

It argues that it operates in the real world and it is about investing in companies that have a lighter footprint than their peers in any given sector. The Holden report doesn't surprise me.

There is already doubt that many fund managers going down the SRI route do not have the resources actively to build a relationship and influence companies they invest in.

It wasn't so long ago that another report, from FairPensions, claimed that the majority of Britain's biggest occupational pension schemes were keeping their members in the dark about the environmental and social impact of their investments.

It argued that the lack of transparency meant a supporter of Amnesty International may unwittingly be backing business ventures in states with oppressive regimes, or someone who regularly donates to Friends of the Earth could discover they have effectively been supporting an oil company's climate change denial policy.

At least the age-old myth that ethical investors have to compromise on performance has been turned on its head. Performance from many groups has rivalled that of their non-ethical peers, with many frequently at the top of the performance tables, and all of a sudden green fund managers are not the hippies they were once perceived to be.

In the spirit of doing the right thing, recycle your rubbish, stop flying or invest in an ethical fund by all means – just make sure you are fully aware of what companies it invests in. It would be green of you not to.

Government's arrogance to campaigning pensioners

The tens of thousands of pensioners who have spent years campaigning for their pensions have secured yet another victory against the Government. This week, the Appeal Court upheld a verdict that government maladministration played a role in workers losing their pensions, and that any appeal was "irrational".

On hearing the verdict, the Department of Work and Pensions (DWP) said it wants to consider the judgment with its colleagues in Government "before deciding whether to pursue an appeal".

The Government has been found guilty of misleading these thousands of workers into thinking their occupational pensions were safe, not once or even twice but six times now. Yet it is still refusing to admit any wrongdoing. That it is even considering to appeal is taking arrogance to a new level.

Surprising returns? It all depends who you talk to

An eager press officer from Abbey called me with a question last week. Which asset class delivered the best returns in 2007? Equities, cash, bonds or property?

The answer, he tells, me is equities with a return of 7.36pc compared to cash (5.65pc), residential property (4.8pc), corporate bonds (-0.4pc) and commercial property, which plunged 3.5pc. Yet only one in 10 of the people it surveyed had a clue that equities were the top performer.

Abbey says the results were "surprising". I suppose it depends on how many of those surveyed were Abbey investors. After all, its multi-manager equity fund managed a paltry return of 3.3pc and its equity income fund just 2pc last year. Indeed, 11 out of its 12 equity funds underperformed the FTSE 100 return of 7.36pc. Still surprised?

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