What is Ethical Investment?
Let's get rid of one myth straight off.
The performance of ethical funds compares very well with those that have no ethical screening. There is no reason or evidence to suggest that investing your money ethically will adversely affect the performance of your investments . It is true that ethical investments do behave differently to nonscreened funds but over time they usually end up about the same.
Investors without ethical concerns often hold screened-funds in their portfolios because of their performance
Ethical investment is about positive change:
• It is about engaging with companies to improve their environmental standards.
• It is about talking to company directo.rs to encourage sustainability in their business practices.
• It is about taking the fair trade message to the heart of the City.
The History
Ethical investment is said to have many roots. One was the decision of the American Methodist churches to invest in the market in the 1950’s. Previously they had seen this as gambling. Others say that retail funds started during the Vietnam War.
What is true is that Friends Provident started their Stewardship Fund in 1984 and it was the first UK collective investment that was ethically screened. Initially it was nicknamed the Brazil Fund in the City of London - not because of a geographical bias but because it was seen as nutty! It took two years of record growth before City financiers stopped laughing.
There are now over 100 ethical funds, therefore geographical and asset class restrictions are no longer an issue
The Methods
Exlusion Investing:
Originally the fund managers excluded certain activities for their fund: This was called “Exclusion Investment” This way of investing ethically enabled you to avoid investing in companies that are involved in areas that may be of concern for you, for example:
• The production, sale and trade of arms and weapons.
• Animal experimentation and intensive farming.
• Tobacco.
• Alcohol.
• Pornography.
• Companies that trade with countries which abuse human rights.
• Environmental pollution.
• Nuclear power.
• The development and use of genetically modified organisms.
And helped you to choose to invest in companies which may for example:
• Have good working conditions and policies e.g. equal opportunities
• Respect animal welfare
• Make a positive contribution to the community e.g. those involved in public housing, public transport, healthcare products and services (not animal experimentation).
• Demonstrate environmental initiatives including pollution control and investment in alternative energy.
• Be open about their activities.
• Promote organic farming.
Engagment Investing:
Whilst most ethical funds will still exclude some of the above there has been a move in recent years to use the power of the money invested to bring pressure to bare on company directors to make changes in their working practices. This approach is call “Engagement Investing” and is more commonly known as “Socially Responsible Investment”.
How Can It Be Used?
Ethical investment covers pensions, bank accounts, savings, investments, mortgages and some insurance products. The big difference is that an ethical financial planner links your concerns to the power of your money and works to a strong ethical code.
Click Here fo the E.I.R.I.S. Directory of Ethical Funds.
