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Green and Ethical Finance - UK - April 2009

In recent years, green and ethical issues have moved up the political agenda while consumers have become more aware of and interested in these issues. Financial companies have responded, largely by adopting sustainable and socially responsible business practices and taking steps to become carbon-neutral. In addition, recent years have seen some new banking and insurance products emerge, while ethical funds are now a well-established sector within the investment industry.

But what do consumers think of these products and how appealing are they? Moreover, in these difficult economic times, do good intentions count for less when budgets are stretched? Are people prepared to pay more for green products, or must these products also compete on conventional selling points such as customer service, convenience and cost?

This report explores these issues, drawing on the findings of our independent survey and online focus group research. It examines current take-up levels of green and ethical products and assesses the market’s prospects for future growth. The report also investigates attitudes towards financial companies adopting green strategies and measures the extent to which consumers trust some of the best-known financial brands to behave ethically.

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Table of contents

  1. Issues in the Market

      • Abbreviations
      • Future Opportunities

        • Raise the profile of green finance
          • Compete on traditional selling points to convert potential green targets
            • Combat consumer cynicism
            • Market in Brief

              • The green movement
                • A growing market
                  • Ethical investments suffer setback
                    • Competitive environment
                      • Long-term prospects are highly favourable
                        • Figure 1: Current market penetration of green and ethical finance products, January 2009
                        • Figure 2: Future consideration of green and ethical finance products, January 2009
                      • Ethical issues considered most important by consumers
                        • Figure 3: Top six ethical issues of importance to consumers, January 2009
                      • Putting ethics into practice
                        • Figure 4: Top six green and ethical activities undertaken, by consumers, January 2009
                        • Figure 5: Population segmentation, by number of green/ethical activities undertaken, January 2009
                      • Consumers are starting to take more notice of companies’ ethical practices…
                        • …but there’s still plenty of scepticism to overcome
                          • Some companies have more work to do than others
                            • Figure 6: Overall ethical trust score of selected financial companies, January 2009
                        • Market Background

                          • Key points
                            • So what is green and ethical finance?
                              • Still a relatively niche sector
                                • The green agenda is gaining momentum…
                                  • …prompting companies to respond and play their part…
                                    • …although most consumers remain unconvinced of their commitment
                                      • Recent industry initiatives
                                        • Ethical investing
                                          • Approaches to ethical investing
                                            • Varying shades of green
                                              • Ethical banking sector
                                                • Ethical insurance
                                                • Trading Environment

                                                  • Key points
                                                    • Summary of the main market and macroeconomic developments
                                                      • The crunch effect on investor behaviour
                                                        • Stockmarket turmoil
                                                          • Figure 7: FTSE 100 and FTSE All Share – daily index movements, January 2000-January 2009
                                                        • Implications for ethical investors
                                                          • FTSE4Good
                                                            • Figure 8: FTSE4Good UK Index – monthly index movements, July 2001-March 2009
                                                          • Other indices
                                                            • Income and spending growth slows, while the savings ratio collapses
                                                              • Figure 9: Total PDI, consumer expenditure and savings ratio, 2003-12
                                                            • Implications
                                                            • Strengths and Weaknesses in the Market

                                                              • Significant opportunities to expand green finance offerings
                                                                • Figure 10: Green and ethical finance – summary of strengths, weaknesses, opportunities and threats, 2009
                                                            • Market Size and Segmentation

                                                              • Key points
                                                                • A small but fast-growing market
                                                                  • Figure 11: Value of the ethical finance market and other ethical consumerism – UK, 2003-07
                                                                • Ethical finance accounted for over two fifths of ethical consumerism in 2007
                                                                  • Figure 12: Total value of ethical consumerism and proportion represented by the finance sector – UK, 2003-07
                                                                • The largest sub-sector is ethical investments
                                                                  • Figure 13: Composition of the ethical finance market, by sub-sector, 2007
                                                                • Ethical investment sector grew by nearly a quarter in 2007…
                                                                  • Figure 14: Value of ethical finance market, by sub-sector, 2003-07
                                                                • 2008 performance
                                                                  • …but the gain was wiped out in 2008
                                                                    • Figure 15: Ethical unit trust and OEIC fund sector, by funds under management and retail sales, 2003-08
                                                                  • 2009 outlook
                                                                    • Green mortgages: a very niche sector
                                                                      • Figure 16: Value of green mortgage repayments, 2003-07
                                                                  • Ethical Brands and Products

                                                                    • Key points
                                                                      • Ethical investment sector
                                                                        • Friends Provident
                                                                          • Others
                                                                            • Do ethical funds perform just as well?
                                                                              • Figure 17: Five-year returns for selected ethical versus non-ethical funds, 2009
                                                                            • Ethical banking sector
                                                                              • Co-op Bank
                                                                                • Ecology Building Society
                                                                                  • Triodos
                                                                                    • Charity Bank
                                                                                      • Green mortgages
                                                                                        • Green insurance
                                                                                          • Green motor insurance
                                                                                            • The Green Car Insurance Company
                                                                                              • MORE TH>N
                                                                                                • Eco-friendly home and travel insurance
                                                                                                • The Ethical Consumer – Issues of Importance

                                                                                                  • Key points
                                                                                                    • About Mintel’s consumer survey
                                                                                                      • Online focus group
                                                                                                        • Climate change is top concern
                                                                                                            • Figure 18: Ethical issues of concern or importance, January 2009
                                                                                                          • Concern for the environment is evenly spread among the age groups…
                                                                                                              • Figure 19: Ethical issues of concern or importance, by age, January 2009
                                                                                                              • Figure 20: Top three issues of concern of importance, by gender and age, January 2009
                                                                                                            • …while excessive company profits are more important to the older age groups
                                                                                                              • Figure 21: Ethical issues of concern or importance, by gender and age, January 2009
                                                                                                          • The Ethical Consumer – Shades of Green

                                                                                                            • Key points
                                                                                                              • One in 17 people bank with an ethical provider
                                                                                                                  • Figure 22: Green/ethical activities undertaken, January 2009
                                                                                                                • Women are ‘greener’ than men
                                                                                                                  • Figure 23: Green/ethical activities undertaken, by gender and age, January 2009
                                                                                                                • One in four people concerned about animal welfare are Ultra Green
                                                                                                                  • Figure 24: Green/ethical activities undertaken, by ethical issues most concerned about, January 2009
                                                                                                                • Ethical bank customers like to be insured
                                                                                                                  • Figure 25: Financial products owned, by customers of ethical banks versus non-customers, January 2009
                                                                                                                • Profile of an ethical banking customer
                                                                                                                  • Company ethics are often weighed against other key selling points
                                                                                                                      • Figure 26: Propensity to buy ethical finance products, January 2009
                                                                                                                    • Scope to expand the market
                                                                                                                      • Figure 27: Green/ethical activities undertaken, by propensity to buy ethical finance products, January 2009
                                                                                                                      • Figure 28: Propensity to buy ethical finance products, by number of green and ethical activities undertaken, January 2009
                                                                                                                    • So what are the main barriers to growth?
                                                                                                                      • Those who occasionally choose an ethical provider record highest take-up of equities…
                                                                                                                        • Figure 29: Financial products owned, by propensity to buy ethical finance products, January 2009
                                                                                                                      • …and are very ethically aware
                                                                                                                        • Figure 30: Ethical issues of concern or importance, by propensity to buy ethical finance products, January 2009
                                                                                                                    • How Much do Consumers Trust Financial Brands to be Ethical?

                                                                                                                      • Key points
                                                                                                                        • Co-op Bank is the most trusted to behave ethically
                                                                                                                            • Figure 31: Degree to which people trust selected financial companies to behave ethically, January 2009
                                                                                                                            • Figure 32: Degree to which people trust selected financial companies to behave ethically (illustration), January 2009
                                                                                                                          • Non-shareholder companies tend to engender greater trust levels
                                                                                                                            • Figure 33: Degree to which people trust selected financial companies to behave ethically – rebased*, January 2009
                                                                                                                          • Supermarket banks and insurers are least trusted to behave ethically
                                                                                                                            • Figure 34: Overall ethical trust score of selected financial companies, January 2009
                                                                                                                          • Implications
                                                                                                                          • Attitudes and Approaches toward Ethical Finance

                                                                                                                            • Key points
                                                                                                                              • Many people are cynical about the green claims made by finance companies
                                                                                                                                  • Figure 35: Agreement with attitudinal statements about ethical finance, by gender, January 2009
                                                                                                                                • Despite the cynicism, finance companies can make a difference
                                                                                                                                  • Men are more sceptical than women
                                                                                                                                    • Young, free and positive
                                                                                                                                      • Figure 36: Agreement with attitudinal statements about ethical finance, by age, January 2009
                                                                                                                                    • Almost a third of Ultra Greens will pay extra for ethical products
                                                                                                                                      • Figure 37: Agreement with attitudinal statements about ethical finance, by number of green and ethical activities undertaken, January 2009
                                                                                                                                    • Experience of ethical products improves perception of their value
                                                                                                                                      • Figure 38: Agreement with attitudinal statements about ethical finance, by propensity to buy ethical financial products, January 2009
                                                                                                                                  • Ownership and Future Consideration of Green Financial Products

                                                                                                                                    • Key points
                                                                                                                                      • Huge market potential
                                                                                                                                          • Figure 39: Current ownership and future consideration of ethical financial products, January 2009
                                                                                                                                        • Over half would consider choosing ethical finance products in the future
                                                                                                                                          • Figure 40: Current size of the green and ethical finance market versus its potential size, January 2009
                                                                                                                                        • Co-op Bank’s customer profile is biased towards the over-35s
                                                                                                                                          • Figure 41: Current ownership of ethical financial products, by gender and age, January 2009
                                                                                                                                        • Highest penetration of ethical finance products among 18-24-year-olds
                                                                                                                                          • Figure 42: Penetration of green/ethical finance products, by gender and age, January 2009
                                                                                                                                        • One in eight Ultra Greens are customers of Co-op Bank
                                                                                                                                          • Figure 43: Current ownership of ethical financial products, by number of green and ethical activities undertaken, January 2009
                                                                                                                                        • Scope to convert potential prospects into actual customers
                                                                                                                                          • Figure 44: Current ownership of ethical financial products, by propensity to buy ethical products, January 2009
                                                                                                                                        • The young are keen to consider ethical products in the future
                                                                                                                                          • Figure 45: Ethical financial products would consider getting in the future, by gender and age, January 2009
                                                                                                                                        • Future consideration is even greater among those concerned about ethical issues
                                                                                                                                          • Figure 46: Ethical financial products would consider getting in the future, by ethical issues of concern or importance, January 2009
                                                                                                                                        • Nearly a third of adults expect to consider a firm’s green and ethical credentials when next arranging finance products
                                                                                                                                          • Figure 47: Likelihood of considering ethical factors when next buying financial products, January 2009
                                                                                                                                        • Again, providers most need to convince younger consumers of their ethical merit
                                                                                                                                          • Figure 48: Likelihood of considering ethical factors when next buying financial products, by gender and age, January 2009
                                                                                                                                        • Non-shareholder firms set to benefit the most
                                                                                                                                          • Figure 49: Ethical issues of most concern or importance, by likelihood of considering ethical factors when next buying financial products, January 2009
                                                                                                                                        • Further analysis
                                                                                                                                        • Appendix – Number of Green Activities Undertaken by Demographics

                                                                                                                                            • Figure 50: Number of green and ethical activities undertaken, by gender, age, socio-economic group, marital status, presence of children and region, January 2009
                                                                                                                                            • Figure 51: Number of green and ethical activities undertaken, by working status, household income, daily personal internet usage, daily newspaper readership and main supermarket used, January 2009
                                                                                                                                        • Appendix – Propensity to Buy Ethical Financial Products by Demographics

                                                                                                                                            • Figure 52: Propensity to buy ethical financial products, by gender, age, socio-economic group, marital status, presence of children and region, January 2009
                                                                                                                                            • Figure 53: Propensity to buy ethical financial products, by working status, household income, daily personal internet usage, daily newspaper readership and main supermarket used, January 2009
                                                                                                                                        • Appendix – Future Buying Intentions by Demographics

                                                                                                                                            • Figure 54: Likelihood of considering ethical factors when next buying financial products, by gender, age, socio-economic group, marital status, presence of children and region, January 2009
                                                                                                                                            • Figure 55: Likelihood of considering ethical factors when next buying financial products, by working status, household income, daily personal internet usage, daily newspaper readership and main supermarket used, January 2009

                                                                                                                                        Companies Covered

                                                                                                                                        • Abbey
                                                                                                                                        • Aegon UK
                                                                                                                                        • Aldi Stores Ltd (UK & Ireland)
                                                                                                                                        • Asda Group Ltd
                                                                                                                                        • Association of British Insurers
                                                                                                                                        • Aviva Plc
                                                                                                                                        • AXA UK plc
                                                                                                                                        • Bank of England
                                                                                                                                        • Barclays Bank plc
                                                                                                                                        • Bloomberg L.P.
                                                                                                                                        • Bradford & Bingley plc
                                                                                                                                        • Britannia Building Society
                                                                                                                                        • British Bankers' Association (BBA)
                                                                                                                                        • British Chamber of Commerce
                                                                                                                                        • Co-operative Group
                                                                                                                                        • Cohn & Wolfe
                                                                                                                                        • F&C Asset Management plc
                                                                                                                                        • Friends Provident plc
                                                                                                                                        • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                        • HSBC Private Bank (UK) Limited
                                                                                                                                        • Investment Management Association
                                                                                                                                        • Lidl (UK)
                                                                                                                                        • Lloyds Banking Group
                                                                                                                                        • Marks & Spencer
                                                                                                                                        • MasterCard UK
                                                                                                                                        • Nationwide Building Society
                                                                                                                                        • NatWest
                                                                                                                                        • Northern Rock plc
                                                                                                                                        • Norwich & Peterborough Building Society
                                                                                                                                        • Norwich Union
                                                                                                                                        • Office for National Statistics
                                                                                                                                        • Prudential plc
                                                                                                                                        • Royal Bank of Scotland Group plc
                                                                                                                                        • RSA
                                                                                                                                        • Sainsbury's Bank
                                                                                                                                        • Teachers Building Society
                                                                                                                                        • Tesco Personal Finance Limited
                                                                                                                                        • The CarbonNeutral Company
                                                                                                                                        • The Charity Bank Ltd
                                                                                                                                        • The Ecology Building Society
                                                                                                                                        • The Environmental Transport Association (ETA)
                                                                                                                                        • The Ethical Investment Research Service [EIRIS]
                                                                                                                                        • The Hanley Economic Building Society
                                                                                                                                        • Triodos Bank
                                                                                                                                        • Virgin Money
                                                                                                                                        • Waitrose
                                                                                                                                        • Wm Morrison Supermarkets

                                                                                                                                        Green and Ethical Finance - UK - April 2009

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