Cerulli reports the vast majority of ethical investment is made by institutions, which account for $US1,391 billion of the total. The remaining $US33 billion is attributed to mutual funds (or collective investment schemes) which is a lot less than one per cent of the global mainstream mutual fund market the report said. It was roughly estimated, however, that ethical investment in mutual funds would grow to $US150 billion by 2005. The projected growth is, in part, based on the introduction of government initiatives, particularly in Europe, that are tying ethical investment policy disclosure to pension products.

The report notes that the UK legislation requiring trustees to declare the extent they take into account ethical considerations in investment decisions has been copied in France and Germany. The Swedish government has also mandated that the national premium pension fund-AP fonden-takes into account the ethical nature of its investments.

Australia became the latest country to introduce a version of this legislation when an ethical investment disclosure amendment was included in the Financial Services Reform Bill that passed into law in August, 2001.

The report cites the French experience where both the number of ethical funds and the level of assets under management have tripled since 1998. A driver for this growth has been their ethical investment disclosure clause, covering employee savings plans, which was introduced in 2000. Ethical funds could account for five to ten per cent of the total employee savings pool in the near future said the report. Total funds in the pool were last measured at 60 billion euros which compares to the current value of ethical investment in France of 1 billion euros ($1.75 billion).

Cerulli reports that Japanese investors are showing greater interest in ethical investments despite slow growth so far. Increasing awareness of environmental issues in Japan-both at the industry and consumer level-has triggered the creation of new ethical funds and their take-up by female investors. Even though women aren’t active mutual fund investors they do control the bulk of the nation’s financial assets, according to the Report.

The report estimates the value of ethically managed funds in Australia at $US 900 million which is below the latest estimate – released by the Australian Ethical Investment Association a little over a week ago – of more than $US5.4 billion. The reason for the large difference is that the latest EIA estimate includes figures for the church sector exceeding $A3.2 billion, and $US1.3 billion voted in local shareholder activist campaigns.

In the US, ethical mutual funds have US$14 billion in assets which accounts for over half of the world’s total while still only a fraction of the US$7 trillion-plus in mainstream retail investment funds. (Interestingly these figures are also apparently at odds with a recent estimate by Pax World Funds that the value of assets in screened US mutual funds now exceeds $100 billion).

Overall, Cerulli reports, the ethical industry has seen assets double since the end of 1998 and is one of the fastest-growing segments of mutual fund market.

The dominant force in world ethical investment, accounting for over 92 per cent of the sector globally, is by US institutions controlling over US$1.3 trillion in assets.