Ethical Investments


What is an ethical investment?
Ethical investments, or socially responsible investments, are actively managed unit trusts that look to invest in companies that are known to operate with a firm awareness of their responsibility to the environment and society.

Many people want to know that there investment will not be encouraging the exploitation of third world countries, or damaging the environment or rain forrests, or promoting gambling or modified foods etc.

In practice there is a good choice of ethical investment funds that will focus on different areas and will achieve that focus in different ways.
 

How are they ethical?
Although the definition of ethical investments will depend on the fund manager and the objective of the fund itself, there are four main types of ethical approaches a fund could utilise:
  • Positive screening – the fund will look to invest in companies that actively promote social and environmental responsibility e.g. companies that are involved with pollution control, conservation, recycling and companies that develop the technology for this to happen, or companies that promote community cohesion and equal opportunities, companies that develop safety devices/equipment/clothing, as well as health care and elderly care organisations to name a few examples.
     
  • Negative screening – the fund will actively avoid investing in companies that are involved with unethical practices or products. These can be companies that manufacture weapons or undertake military contracts, companies that exploit animals in any way e.g. animal testing and the production of pesticides, companies that oppress human rights, are involved with tobacco, drugs and alcohol, companies that promote intense farming, companies that produce pornography or other adult material, organisations that exploit their power in their dealings with smaller companies or those from thrid world countries, and companies that help produce nuclear power or are a threat to the environment e.g. are involved with deforrestation etc.
     
  • Integration - this is a practice that actively promotes the awareness of a fund manager to include ethical, soical and governance risk into the traditional analysis undertaken by the fund research team.
     
  • Dialogue and engagement - this refers to fund manager attempts to influence others to promote a more ethical approach. Most often it relates to fund managers talking to their peers about the business case for change.

In practice a fund manager may make use of one or more of these strategies to adopt the most suitable and ethical approach for their fund.


Can you make a difference?
In a word, yes. The more people that invest in ethical funds the more the fund management companies will respond to demand by launching their own ethical funds and variations of them.

Fund management companies are incredibly powerful themselves as they can own significant proportions of any individual listed company.

So if companies want to remain attractive to potential investors, and more importantly fund management groups, then they would have to conform to more ethical practices if that is what the investor, and therefore the fund manager, demands.


How can I invest in ethical funds?
Our Instant Funds Portfolio provides access to over 1500 discounted funds, including many of the best ethical funds, that you can invest in through your ISA.

Our Free Range Portfolio provides access to almost every fund on the market (too many to count) and offers these funds at institutional or wholesale rates, which means many funds are available at low or even no initial charge.

Investor Profile never takes an initial charge on investment as we believe you should have all your money working hard for you from the start of your investment.