2.18.2008 ET

February 18, 2008 - Ethical and climate change funds that claim to be socially responsible are failing to invest in companies which support the environment, a new study claims.

The report by independent financial adviser Holden & Partners reveals most ethical funds are 'surprisingly mainstream' in their overall portfolios, with very little investment in committed environmental companies.

'Some funds that are branded as ethical do not look any different to non-ethical funds when it comes to the companies they are investing in,' says Mark Hoskin, partner at Holden & Partners, which specialises in offering ethical and environmental financial advice.

'A socially responsible investor will choose a fund precisely because it is branded "ethical". They won't necessarily look at the underlying investments because they trust they will be ethical. But some investors would be surprised to see what their holdings really are.'

Socially responsible investment (SRI) funds use a form of ethical screening to select which stocks and sectors they will invest in, using a mixture of negative and positive criteria. Each fund has its own interpretation of these positive and negative factors- one may categorically choose not to invest in a company that has any involvement in animal testing, while another might invest in companies that carry out legally required animal testing only for the production of life-saving medicines rather than, say, cosmetics.

However, the study reveals that several ethically branded funds hold stocks in oil giants such as Premier Oil, Shell, Neste Oil and BP. 'This throws up questions about the screening process used by some companies,' says Hoskin. 'Can it be an ethical fund if some of its biggest holdings are in oil?'

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