The state of manufacturing in the UK and globally – October Key Indicator

the state of manufacturing - redundant machinesThis month’s Key Indicator looks at the state of manufacturing in the UK and globally and by all indications, it is struggling everywhere.

While the proportion of manufacturing as a part of individual national economies varies all economies depend on trade with each other and in an interconnected world a slowdown in one place can have a significant impact on others.

China is currently the No 1 in the world in terms of manufacturing output valued at $2,010 billion representing 27% of national output. USA is second ($1,867, 12%); Japan third  ($1,063, 19%); followed by Germany ($700, 23%); South Korea ($372, 29%); India ($298, 16%); France ($274, 11%) and Italy ($264, 16%).  The UK trails these countries in ninth place with $244 billion manufacturing output representing 10% of national output.

Poland meanwhile has the highest percentage of its workforce employed in manufacturing, followed by Germany, Italy, Turkey, and South Korea.

In the UK, manufacturing makes up 11% of GVA, 44% of total UK exports and directly employs 2.6 million people. In fact, in August according to IHS Markit/CIPS the UK manufacturing sector fell to a seven-year low.

The CBI (Confederation of British Industry) monthly survey showed that manufacturing order books fell in September to -28 from -13, well below consensus expectations of -16%. While food, drink and tobacco and mechanical engineering drove positive growth, metal manufacture, metal products and textiles and clothing pulled in the opposite direction.

However, figures everywhere over the last few months make grim reading.

IHS Markit’s latest snapshot for September of Germany’s manufacturing growth, where a score under 50 signals contraction, slid to 41.4, the worst reading since June 2009. In fact, the entire Eurozone is experiencing a contraction, according to official data from Eurostat, the statistical office of the European Union in Luxembourg.

In China, Reuters reports that growth in industrial production in August was at its weakest in more than 17 years while in the USA, too, the New York Times reported that in August the manufacturing sector contracted again as it had in July, albeit manufacturing accounts for just 11-12 percent of the country’s gross domestic product.

What is causing the current state of manufacturing in the UK and globally?

In a word, uncertainty is the theme everywhere, but while the primary causes may differ around the world, in many ways the underlying reasons are politics and market economics.

There are two ongoing conflicts: 1. between those who advocate stimulating economies and those who believe we should live within our means; and 2. between those who believe in market forces and those who seek to control them whether by tariffs, duty, currency control or exchange rates.

In September the USA introduced yet another set of trade tariffs on Chinese imports as part of the ongoing trade war launched by US president Donald Trump. The question is what next as tariff talks between the two are due to resume in October.

In the UK, clearly, the ongoing uncertainty is primarily over when, if or whether the country will finally resolve its various dilemmas over leaving the EU at the end of October as Prime Minister Boris Johnson continues to promise.

Manufacturers anticipate that output volumes will fall briskly over the next quarter and that output price inflation will accelerate in the next three months, above the long-run average. Anna Leach, deputy chief economist at the CBI, said: “UK manufacturers have become noticeably gloomier in September.”

However, arguably the three-year Brexit wrangle has had its repercussions well beyond the UK as manufacturing supply chains are so closely interwoven across the EU. The effects of the reduced value of £Sterling against the Euro and other currencies has added significant costs to importing of raw materials and components, which has had a significant impact on the automotive industry particularly.

There is little sign that the politicians will shift their stance on the big issues but the one element that so far does not seem to have been factored into the arguments is the effect of climate change and the damage to the environment.

This is an issue that has become so pressing that it is just faintly possible that it could prompt a radical rethink in the way businesses trade globally, the way goods are manufactured and what goods will, or should, be made in the future, and above all on how national and global economies should measure economic success.

Perhaps this presents an opportunity for SMEs to come up with new and innovative ideas that will promote sustainable growth without the endless competition that currently seems to dominate the discussion?

Can SMEs afford to wait any longer for a business rates review?

business rates review is urgent for businessesRetailers have been calling for months for a business rates review as the decimation of the UK’s High Street continues.

In early August more than 50 leading retailers wrote to the Chancellor urging him to change tax rules to boost the UK High Street and the business law firm RPC has reported that there has been a 65% increase in the number of businesses challenging their rates bill in the last quarter, with 4,000 challenges made in the first quarter of 2019, up from 2,430 challenges in Q4 2018.

RPC explains that the increase in challenges shows broadening dissatisfaction with business rates. Jeremy Drew, Co-Head of Retail at RPC, explains that the property tax is so complex that each new ratings review sees thousands of challenges lodged by businesses.

The retailers’ call was reinforced later in the month by the CBI (Confederation of British Industry), whose chief economist Rain Newton Smith said reform would be an enormous help to companies facing uncertainty and rising costs.

So, it is not only retail businesses that are struggling as new figures from an investigation by the real estate adviser Altus Group revealed earlier this week.

Using the Freedom of Information Act, it asked all the councils in England to provide details of how many business premises had been referred to Bailiffs.

It found that during the financial year 2018/19 councils appointed Bailiffs to visit 78,000 non-domestic properties including shops, restaurants, pubs and factories to collect overdue business rates.

What are the chances of a business rates review in the near future?

There are worries that in the light of politicians’ and Government’s ongoing tunnel-vision focus on Brexit urgent domestic concerns are being forgotten.

A total of 10 trade bodies have written to the Treasury Select Committee to express concern that the recent ministerial reshuffle has risked delaying urgent business rates reform.

Robert Hayton, head of UK business rates at Altus, said: “It’s not the mechanics of the rating system that is of primary concern to business but the level of the actual rates bills.”

“Commercial property is already making a significant contribution to overall UK tax revenues…with the highest property taxes across the EU…”

And John Webber, Head of Business Rates at commercial real estate advisers Colliers International, has said that a Government promise to carry out business rates reviews every three years, rather than every five, “ will merely scrape the surface of a current business rates system that needs much more drastic reform”.

This includes a revamped appeals system, which has been made so complicated that at first SMEs were deterred from using it. Also, a lack of staff at the VOA (Valuations Office Appeals), Colliers argues, has created an enormous backlog of appeals being settled.

The Times recently reported that the number of outstanding appeals has risen six-fold.

It is clear that if the UK economy, which relies heavily on SMEs, is to survive and thrive once Brexit is finally settled (if it ever is) the conditions in which they operate will have to be vastly improved, and quickly, if they are to be able to manage their cash flows, create sustainable business plans and grow in the future.

Perhaps the most urgent element of this is a business rates review given that the present system is far from fit for purpose.

What is AIM and is it beneficial to SMEs to apply for AIM listing?

aim for growing businessIt is coming up to 25 years since AIM (Alternative Investments Market), the London Stock Exchange’s junior stock market, was launched and it now lists around 3,600 businesses.

According to the accounting firm BDO, “AIM is the most successful growth market of its type in the world” and in the last five years AIM-listed businesses “have created an additional 76% jobs, now employing almost 390,000 people”.

The London Stock Exchange website explains that AIM is targeted at smaller, and growing, businesses and offers them “the benefits of a world-class public market within a regulatory environment designed specifically to meet their needs”.

It is a multilateral trading facility, operated and regulated by the London Stock Exchange under FCA rules.

Candidates for AIM listing do not have to have a trading track record, but they must abide by the rules. There are very clear guidelines on how to apply for AIM listing on the Stock Exchange website.

They must appoint and maintain an AIM approved Nominated Advisor, also known as a NOMAD, who is responsible to the Exchange for assessing the appropriateness of an applicant for AIM. The NOMAD also advises and guides their client through the AIM listing process and once listed ensures it complies with its ongoing responsibilities.

The Stock Exchange will suspend trading of the company if it ceases to retain a nominated advisor and if a new NOMAD is not appointed within a month, its AIM listing is cancelled and its shares can no longer be publicly bought or sold.

Albeit with advice from a NOMAD, application for AIM listing is relatively straightforward but listing does cost an estimated £400,000 to £600,000 a year. This covers the NOMAD and other adviser and broker fees, plus AIM membership at around £100,000 per year, according to the website startups.co.uk.

Startups lists some of the pros and cons of AIM listing, the main advantage being future access to raising further funds after the IPO (Initial Public Offering). It says, “AIM listing is being seen as an increasingly attractive investment class to institutions such as pension funds”.

“It also raises the profile of a business, as does having Plc status”, it says. While Plc status requires a minimum of £50,000 share capital, AIM companies tend to have much more and there is the attraction of having publicly tradeable shares.

The downsides according to Startups, are not only the financial cost but also the difference between running a Plc as opposed to a privately-owned business, plus the business will be vulnerable to the ups and downs of share values.

I would add another downside, the need to make public disclosures about matters that influence the share price. This may be great when an AIM company is doing well but can be disastrous for one that isn’t, especially one that needs restructuring.

Late payments situation getting worse for some SMEs

late payments penalty?According to the ICAEW (Independent Chartered Accountants of England and Wales) late payments to SMEs are a bigger problem than they were a year ago.

Of the nine SME industries analysed, it said, six had reported that the problem of late payments was worsening.

The FSB (Federation of Small Businesses) too, has said that while there have been some improvements thanks to the efforts of the Small Business Commissioner Paul Uppal, late payments remain a major problem and research by Lloyds Bank Commercial released at the end of last month found that last year almost two thirds (62%) of SMEs that were being paid late “failed to chase up for fear of harming customer relationships” also cited time constraints as a significant factor.

The cost to small businesses has been considerable, according to research published by Hitachi Capital earlier this month. It estimates late payments have cost SMEs £51.5bn in the last year.

Its survey of 1000 businesses found that 31% have experienced late payments costing their business at least £10,000 in the last 12 months.

It said that 27% reported that late payments have hit profits, while 12% said the issue had forced them to defer pay to staff. Around 40% have had to use their own money to fund cash flow in their business, with 80% using personal savings to keep their business operational.

Mr Uppal has meanwhile continued to investigate SME complaints and published reports since I last provided an update on the situation.

In mid-July he suspended 18 companies from the Prompt Payment Code, including BT Plc, British American Tobacco and Centrica.

He investigated several complaints and has published reports naming and shaming the companies involved.

They included Bupa Insurance Services Ltd who had failed to pay an invoice for £29,403.76 on 2 November 2018 based on 45-day end of month payment terms. Payment was eventually made 30 days late on January 15 2019 after the SME and Mr Uppal had chased on several occasions.

Also named and shamed in separate reports were Zurich Insurance PLC which eventually paid a claim 65 days later than its agreed payment terms.

Another company, Sambro International failed to pay a small graphic design company within its promised 30 days, for two invoices submitted in November and December 2018. Eventually following Mr Uppal’s investigation, one was paid 56 days late and the second 23 days outside their contracted terms.

Clearly, Mr Uppal and the Chartered Institute of Credit Management (CICM), which administers the system of removal of businesses from the Prompt Payment Code are doing their best, but in the current uncertain economic climate SMEs have enough to worry about without this constant and relentless mistreatment by larger customers and it is well past time the Small Business Commissioner was given stronger powers of enforcement.

The cost to SMEs of IT failures

IT failures in a networked worldThe pressure to do everything online is inexorable but what is the cost to businesses of IT failures?

Perhaps one of the most frequent and difficult issues facing SMEs is the seemingly frequent meltdowns of both banking systems and government websites.

This is without considering the issues of cyber-attacks on companies where the FSB has recently calculated UK small firms are subject to nearly 10,000 cyber-attacks a day, with over a million small firms hit by phishing, malware attacks and payment scams.

Obviously it is in businesses’ own interests to have robust IT systems in place including cyber security, but the frustrations of IT failures are a different issue and often not of their own making since the counter parties also need to have adequate IT systems and security at their end.

Since 2018 the FCA (Financial Conduct Authority) has required banks to publish information about the number of major operational and security incidents they have experienced.

Last month a BBC investigation revealed that bank customers face an average of 10 digital banking shutdowns a month, based on the figures published so far.

The figures for the 12-month period until the end of July 2019 are not exactly comforting. The top five worst “offenders in the list (with the figures in brackets showing failures for the 3 months between 1 April and 30 June 2019) were:

Barclays 33 (4);

NatWest 25 (7);

Lloyds Bank 23 (2);

RBS 22 (7);

Santander 21 (4).

This is at a time when an estimated 6000 small bank branches have been closed, often in small town or rural locations, while, according to analysis by Close Brothers Finance, 51% of SMEs visit a bank branch at least once a week while three quarters use online banking at least once a week, with 41% using it every day.

This would suggest that the costs of IT failures to SMEs, not only in delays, frustration and cash flow issues are considerable.

But it is not only the banks that are a problem. We have lost count of the number of times businesses have reported difficulties with Government websites, from the application process for Business Rate Relief, to authorising and accessing various HMRC websites, and the online court service where last January the entire civil and criminal court IT infrastructure collapsed for several days!

Where does the problem lie for IT failures?

Is the problem with the expectations of those commissioning IT systems, who perhaps do not understand the IT capabilities and limitations? In their understandable desire to win business are the software providers and developers, themselves often SMEs, failing to tell their potential clients honestly what the limits are to the systems they want to commission? Or more pertinently what you can have for the budget.

Or is it simply that the IT skills of the Fintech and other IT provider industries are just not good enough?

We know there is a skills shortage in the IT sector generally but Fintech is supposed to be one of the UK’s most successful sectors.

UK Fintech companies received £740m from venture capital in the second quarter of 2019, almost double the amount invested during the same period last year according to the CBI (Confederation of British Industry), with Challenger Banks like Monzo among the most successful cohorts in Fintech.

Data released by Tech Nation and Dealroom for the government’s Digital Economy Council showed that British tech companies attracted more foreign investment in the past seven months than in the whole of 2018. Another endorsement.

If SMEs are to rely more and more on IT and the tech services of banks and other institutions with which they have to interact, it is perhaps time to look more closely at the services being provided and to make a concerted effort to do something to prevent so many IT failures.

Chaos and Confusion or Order and Clarity? Where are SMEs now with Brexit Planning?

Brexit planning - which way?Brexit planning will continue to dominate the thinking and expenditure of the UK’s SMEs as Parliament is suspended for five weeks and the Government’s plans for leaving the EU on October 31 seem to be in tatters.

Parliament has forced the Prime Minister and cabinet to release its documents, called Operation Yellowhammer, on planning for a No Deal Brexit and has also blocked the possibility of the latter. Both are now, in theory, legal requirements as Acts of Parliament.  However, disagreement prevails.

It is questionable whether the government will obey the law, especially if they can find a way out. Furthermore, there is now no Parliament, or Parliamentary Committees, sitting to scrutinise the Government although the press and Courts are fully engaged.

Notwithstanding the political gymnastics, businesses are deluged with upbeat exhortations and alleged offers of help of which the following is a selection from the last six weeks or so.

Liz Truss, the then International Trade Secretary, described Brexit as a “golden opportunity” for UK businesses and Lord Wolfson, CEO of Next was reported in the Mail on Sunday as being no longer fearful of a no-deal Brexit now that Boris Johnson is Prime Minister. One wonders whether he is now preparing to eat his words.

Last week Alex Brazier, the executive director for financial stability, strategy and risk at the Bank of England, claimed the UK’s financial system will remain stable after Brexit.  Indeed, the BoE now claim a hard Brexit won’t be as disastrous as they previously claimed.

There have also been announcements of several offers of help to businesses with Brexit Planning.

The Business Secretary Andrea Leadsom has launched a £10m grant scheme for business organisations and trade associations to support businesses in preparing for Brexit ahead of October 31. The fund is open to business organisations and trade associations.

Barclays is to host a series of “Brexit clinics” in October and November, with the sessions designed to help its SME customers after Britain’s departure from the EU.

The Government also launched its own £100 million “Get Ready for Brexit” campaign designed, according to Michael Gove, to “give everyone from small business owners to hauliers and EU citizens, “the facts they need” to prepare for the UK’s departure from the EU on October 31st.”

Also, as I reported in July, the BCC (British Chambers of Commerce) launched its own Brexit planning  guidance.

Is all this Brexit planning help and guidance just “smoke and mirrors”?

There is some evidence from SMEs on the ground that their businesses are already feeling the effects of the long-running Brexit saga and that they still feel there is little clarity to help them with Brexit planning.

Last month a QCA (Quoted Companies Alliance) survey of UK small and mid-cap companies found that 59% said it had distracted them from running their business, 16% have invested less in the UK, 43% say that preparing for Brexit has had a negative impact on their company’s growth while just 24% felt the Government had provided adequate information although more than half had taken steps to prepare for the no-deal scenario as best they could.

The real effects on the ground are already being felt.

The value of central EU public procurement contracts secured by UK businesses fell by 30%, to €108m (£99m) in 2018, from €155m (£142m) in 2017, research by UHY Hacker Young.

The British Ports Association (BPA) has dismissed a £10m Brexit fund for English ports as “a tiny amount of money”.

The UK Food and Drink Industry has highlighted its worries about regulatory clearance required for selling animal products to the European Union, warning that there is a serious possibility that, come October, listed status will not be granted.

Towards the end of last month the Guardian described the impact it has already had on one UK company, a Bristol-based manufacturer of industrial safety valves. It reported that at one time its exports were growing fast, with 130 employees and eight apprentices training to high standards, but since the referendum things have quickly changed. According to the owner: “Some EU customers instantly decided it was too much trouble and switched to EU manufacturers – we lost 10% of the business.”

He reported that to continue to trade in the EU post Brexit he needs to obey rules of origin, recording every raw material, tracking every component, requiring “horrendous” new IT systems, his various valves containing 30,000 different configurations and “tripling our admin workload”.

Order and Clarity for Brexit planning? Not quite yet it seems.

So, my advice to SMEs who have to contend with this ongoing Chaos and Confusion remains as it was in July:

For the time being the sensible strategy may be to hold off on any major investment, to focus rigorously on management accounts and cashflow, and to ensure strategy and business plans are as flexible as possible to cover a range of eventualities. It might even be worth contacting a restructuring adviser as part of your contingency planning.

Ongoing carnage in consumer services sector as consumers reduce spending in restaurants and bars

consumer services struggle to surviveAs I outlined in my June sector blog, it is not only well-known shops in the consumer services sector that have been struggling.

The restaurant sector has also seen a plethora of big name closures, including Gourmet Burger Kitchen, Carluccios, Prezzo/Chimichanga, Byron, Cafe Rouge, Jamie Oliver’s restaurant group and most recently the Restaurant Group which has announced that it plans to close up to 100 of its Frankie & Benny’s and Chiquito branches.

A recent CBI poll has revealed that the whole of the consumer services sector, which includes hotels, bars, restaurants and leisure firms, has suffered its fourth consecutive fall in business activity with both profits and confidence plummeting.

Rain Newton-Smith, chief economist of the CBI, said: “The idea of a no-deal Brexit is clearly weighing down the economy and is affecting businesses both big and small.”

But, of course, there is much more to all this than Brexit uncertainty weighing on businesses and consumers, although the last week of febrile activity in Parliament on this seemingly now all-consuming issue will not help.

Is this a long-term change in consumer behaviour?

Clearly, worries about future job security after Brexit are playing into the declining numbers of people visiting restaurants, bars and hotels which will have contributed to the ongoing decline in the number of pubs and bars, down 2.4% to 116,880 over the past year.

Aside from the increasing numbers of people choosing to eat in, with ordering home-delivered food becoming more common as reported in my June blog, it seems that dining preferences and tastes are all factors.

A recent analysis in the Guardian newspaper revealed that restaurant numbers had fallen by 3.4% in the year to June. It also suggested that our tastes are changing, so that consumers are moving away from Indian, Italian and Chinese establishments in favour of Middle Eastern, Caribbean and specialist vegetarian rivals.

Perhaps, though, among the most significant long-term trends is the shift in demand towards vegan and vegetarian food, as highlighted by the Verdict analysis of restaurants in their 2019 food trends report.  It said: “The country is ever more aware of the amount of food that is wasted and the effect food and packaging has on the planet”.

The other big issue, plastic use and waste, has also grabbed consumers attention as reported in research by RG Group that highlights this as a significant influence on consumers going forward.

Sustainability, transparency and trust are likely to become ever more important in the choices that consumers make, says RG Group: “Consumers today expect brands to be much more accountable when it comes to whether or not they remain loyal. And frequently, perceived accountability comes in the form of commitment to transparency and more socially responsible values and processes.”

Clearly, it is not enough for the High Street and the consumer services sector as a whole to focus solely on providing a “destination experience” as many have promoted in their quest for relevance.

Businesses in this sector, but also in many others, are likely to have to pay a great deal of attention to consumers’ socially responsible values if they want to retain customer loyalty, to survive and grow.

The change to HMRC preferential creditor status v emphasising insolvent business restructure

HMRC preferential creditor status at the head of the queueThe Government’s proposal to restore HMRC preferential creditor status when a business becomes insolvent is, in my view, at odds with its desire to shift the balance in the insolvency regime towards helping more businesses to survive.

In September 2018 I welcomed the Government’s newly-published proposed changes to the insolvency regime, whereby there would be a moratorium, initially 28 days, from filing papers with the courts to give still viable businesses more time to restructure or seek new investment to rescue their business free from creditor action. Consultation on this and other changes to the insolvency regime was begun in 2016.

This year, in the April 2019 budget statement, the then Chancellor Philip Hammond included a proposal to restore HMRC preferential creditor status, something that had been removed as part of the Enterprise Act in 2002.The new preferential status will apply to VAT, PAYE income tax, employee National Insurance contributions, student loan deductions and construction industry scheme deductions and will rank ahead of both the floating charge and unsecured creditors.

Draft legislation has now been published and subject to Parliamentary approval of the Autumn Budget is due to come into effect in April 2020. Although it will only apply to businesses becoming insolvent after that date, it will apply without limit to the relevant historic tax debts, without time limit or cap.

According to the ICAEW (Institute of Chartered Accountants in England and Wales) after a relatively short consultation period between 26 February 2019 to 27 May 2019 the draft legislation appears to take little account of the representations made: “This proposal ….can be expected to deter lending and have other adverse consequences that have not been sufficiently considered…”

Given the current political uncertainty and obsessive focus on Brexit it remains to be seen when and if the new legislation appears in the eventual Finance Bill and when approval would be expected.

Nevertheless, the implications of the restoration of HMRC as a preferential creditor have been widely criticised for the effect it is likely to have on lending, given that it moves the floating charge of secured lenders down the pecking order in terms of getting their money back.

Purbeck Insurance Services, for example, has warned small businesses that the risks of Personally Guaranteed finance facilities are likely to increase and as a consequence more Guarantors will have to pay out.

In addition to the impact on loans, HMRC jumping up the queue for payments will mean less money is left for trade suppliers as unsecured creditors in future insolvencies, no doubt resulting in more insolvencies.

As a turnaround adviser and investor, I agree entirely with the ICAEW: “This proposal is at odds with government efforts to foster an enterprise culture in recent years.”

Key Indicator – a snapshot of the current state of commodity prices

minerals among the commodity prices going downOngoing fears of a global economic recession, not to mention the escalating trade war between the USA and China, are having an impact on commodity prices.

August has been a particularly torrid month, according to analysts, with iron ore prices in particular suffering a sharp drop – up to 30% according to a report in the Financial Times, although other sources also back this up.

The ongoing uncertainty has also had its effect on oil prices, with OPEC cutting production while the USA has increased theirs. This has had its impact on the futures price of oil, with Brent Crude for October falling 31 cents, or 0.5%, to $60.18 a barrel.

According to the latest analysis from Marketwatch.com, published on August 30, “Commodities will end August with a second straight monthly loss”.

It says that the S & P GSCI index, which tracks 24 commodities across five sectors was down by more than 4% at the end of August, following a fall of 7% in July.

Gold and Silver prices, on the other hand have been steadily rising, with Silver reaching a 1-year peak last week, breaking $17 per ounce and Gold prices rising by almost 7% in August.

In the grain sector, Marketwatch reports the biggest decline in corn, of more than 0.9% over the year. Corn futures prices for August were also down, by 9%.

Bloomberg publishes a useful summary of commodity prices covering three sectors, energy, precious and industrial metals and Agriculture here.

Stability is not yet in sight with the ongoing uncertainties over global trade, fears that Germany will soon fall into recession, the outcome of Brexit still unknown and the latest set of USA-imposed tariffs on Chinese goods kicking in from September 1. As a consequence, predicting what will happen to commodity prices is going to be increasingly difficult for the foreseeable future.

This is not likely to be something businesses will be happy to hear as it makes planning more risky.

 

SMEs, start-ups and ethical fundraising

ethical fundraising to save the planetFund raising can be a challenge for SMEs and start-ups but there are signs that many are turning to ethical fundraising for their money.

This growing trend is particularly pronounced among younger business founders and entrepreneurs, many of whom are reportedly shunning the venture capital routes that focus primarily on forcing them to grow as fast as possible to generate returns.

With the issues of global warming, climate change and damage to the environment being a major factor among young people it is no surprise that ideas of sustainable growth and ethical sources of finance should be so appealing.

But are they narrowing their options by focusing on ethical fundraising and risking their prospects for growth and possibly their business survival?

It would seem not, according to analysts, as there is also a growing movement among investors, particularly retail investors, to search for investment opportunities specifically with ethical funds.

Lisa Ashford, chief executive of Ethex, says: “Venture capital funding can often be about financial performance and short term returns and exit strategies, sometimes to the detriment of the other impact aspirations of an organisation. That’s not what our investors are about.”

Ethex was started about ten years ago and works to match ethical businesses with investors that shared their values. It only works with businesses that have a clear social mission and those that conform to very high standards of governance and accountability.

The Guardian last year reported on the growing attraction of ethical investing, which its article argued was becoming more attractive to mainstream investment funds.

Nearly 80% of investors across 30 countries told last year’s Schroders’ Global Investor Study that sustainability had become more important to them over the last five years, increasingly seeing sustainability and profits as intertwined.

According to the website hi.co.uk the term ethical “is often used as a catch-all to describe funds managed with social, environmental, or other responsible criteria in mind”.

It says the main approaches of ethical funds are that they usually avoid companies that do harm to society and instead invest in those that have a positive social impact. But it warns investors to do their research diligently to ensure a fund is consistent with their own views.

From the perspective of the SMEs and start-ups ethical funds may actually benefit them through an alignment of culture, environmental awareness, social consciousness and ethics despite pursuing a strategy for slower growth. There is no reason to suppose such businesses cannot be sustainable, not least because of the opportunities for positive marketing messages that speak to their clients’ or customers’ own ethical concerns.