Following the recent investigation by Friends of the Earth Scotland which found that the Scottish Parliament pension fund invests £3.2 million of its funds into tobacco, weapons and fossil fuels, I began to think about socially responsible investment and how it can impact pension funds. I’ve always been quite sceptical about ethical investment for a number of reasons, mainly the question “What is ethical investment?” It’s a very subjective question, and many people will draw a different line about what they consider to be ethical or unethical. Tobacco was one of the sectors mentioned by Friends of the Earth Scotland in their investigation; it’s easy to see how different people can be on either side of the argument. There’s also the issue that restricting investment in these sectors prevents a fund from investing in a number of well established and stable companies - it seems that this would be detrimental to the performance of the fund. However… 2015 has been a huge year for ethical investment; it seems to be almost on a weekly basis that I read an article about an organisation divesting from fossil fuels and moving to renewable sources. In fact by September 2015, organisations representing assets worth $2.6 trillion have committed to divest from fossil fuels; this is a 50 fold increase in a year. The growing nature of socially responsible investment means that it will not only affect funds who consider ethical investment to be a priority, if the current trend continues changing demand and supply will have an impact on the share prices of fossil fuel companies. In fact, we can already see the impact of this in UK Local Government Pension Schemes (LGPS). Research by Platform London reveals that LGPS invest £14bn in fossil fuels - it is estimated that falling fossil fuel share prices since April 2014 have cost LGPS £683 million since April 2014. Recent data from Investment Life and Pensions Moneyfacts found that the average ethical investment fund outperformed the overall average of funds (excluding ethical funds) by 1.4% over the past year. This also follows a year of good news for ethical sources such as renewable energy where, fuelled by government subsidies, it was reported that the increase in capacity for renewable energy has recently exceeded the increase in capacity of fossil fuel based energy sources for the first time ever. Many companies with ‘green’ aims, such as reducing carbon emissions, should take time to consider where their pension fund is invested as it’s very possible that these funds will have some degree of investment in sectors they could consider to be unethical. The returns available from ethical investment funds may make this a worthwhile consideration financially as well as from a position of principles. A survey by Linklaters found that, while Trustees are keen to increase their investment in alternative assets such as longevity hedging, fewer than 10 percent of Trustees have taken formal measures to understand their members attitudes around socially responsible investment. After carrying out an exercise like this, it may well prove that socially responsible investment in very much in the members interests. To conclude, it seems that socially responsible investment is more than a flash in the pan and the recent performance of many ethical funds and renewable energy sources make them an interesting choice for pension funds, even those that don’t make ethical investment a major priority. Trustees should act in the best interests of their members when deciding what to invest in, in some cases this may extend into helping to promote long term sustainability.