What is Ethical Investment?

  • Does it make a difference?
  • How can I invest Ethically?
  • Sound Financial Strategy
  • Ethical or Green Funds
  • Performance
  • What are the Criteria?
  • Unwittingly, many people may be directly financing the arms trade, environmental destruction or human rights abuse through their Bank accounts, Life Assurance, Pension, Savings and Investment Plans. For instance, who can clearly state they do not share their Bank (and therefore their money) with an arms company, one that uses child labour to manufacture its goods or a company contributing unnecessarily to climate change.

    When an arms manufacturer gets a large order and needs to increase borrowings from its Bankers to meet the order, can you honestly say that your Bank does not lend your money to finance the order? If a company agrees to finance or support dictator ship, can you be linked to the transaction? Where there is a serious chemical spillage, can you be seen as supporting this catastrophe?

    These are important questions, and every day hundreds of thousands of people who do not apply ethical or social screening to their money are allowing their funds to be used to finance companies and projects they do not support. If your Bank, Insurance, Pension or Investment Company were to ask you if you would mind them using your money to finance a heavily polluting company, of course you would say no. But let's face it, when was the last time you were asked?

    Much of the problem with investing lies in the fact that when the savings, investments or pension payments of thousands of people are pooled together, the money is invested on the stock market. This money is going to be invested in companies with the sole aim of maximizing the return at any cost. This is your money and your future, but how can you be sure that your future is not being rapidly destroyed by your own investments? The economics of the 'quick buck' can be so destructive. They work against all the laws of sustainable growth, of working within the limits of the planet's resources and the clear natural law that if we destroy our planet we destroy ourselves.

    Ethical, or Socially Responsible, Investment offers the opportunity for investors and savers to avoid the companies whose activities they would not want to support, and invest in those operating within a moral framework that reflects their own moral stance.

    The first ethical investment fund in the UK was launched in 1984 by Friends Provident as a direct result of their Quaker roots. 23 years later there are dozens of funds from many of the UK's leading fund management groups.

    What ever your concern, People, Planet, Animals, Faith, there is now an ethical fund that will match your views. The concept of ethical is going to vary between individuals, and another man's meat is another man's poison, will inevitably apply. In our experience there are certain key moral issues that are deemed to be beyond the pale for all investors, but beyond that it is possible to apply more personalized and bespoke views upon the manner in which one's money is invested. This includes, for an increasing number of investors, not just avoiding certain activities but actively investing in appositive way; to support companies contributing to a sustainable future.

    It would be misleading to imply that all ethical funds contain only companies about which investors would have a positive reaction. In reality, the average ethical fund contains many of these positive investments, but these positive holdings (often in quite small companies) are balanced by companies deemed to be ethically neutral'. Criticism of ethical funds is often based upon high lighting these ethically neutral companies but any comparison of an ethical fund against a non-ethical stable mate will highlight to an ethically aware investor that while the ethical fund is hardly a perfect solution, it is significantly better than the alternative fund, inevitably investing into those companies with appalling records in numerous areas of concern.

    By applying socially responsible or ethical criteria to the use of your money within the 'system' you are making a stand for change. As long as campaigning continues on the side lines, very little change will come about. The heart of our current system is money, and the pursuit of profit. Whilst there is nothing wrong with looking for growth from one's money, many draw the line at financing activities they do not support.By being part of the system, but at the same time applying moral criteria to how your money is used, enables change can take place more rapidly. Investing ethically is now one of the fastest growing areas in financial planning (funds in the ethical sector have grown from £1Bn in 2000 to over £5Bn in 2007).

    As more people make a stand, the speed of change will continue to accelerate. The recent development of the engagement approach adopted by both campaign groups and city fund managers highlights a further opportunity for the socially aware investor to make a difference. Investing in companies using an Engagement policy allows managers to encourage companies to improve their social and environmental impact. Engagement isn't going to turn an arms manufacturer into a wind turbine manufacturer, but it has been shown to make a significant difference to a corporate stance in an area where there is an opportunity for significant change; reducing a company's carbon footprint or moving to a Fair Trade supplier

    Time has also proved that investing ethically is in no way any handicap to investment performance, it is actually a significant benefit. In a recent paper released by Standard Life investments, they have proven that investing ethically has actually boosted the return on their ethical fund, over and above the equivalent non-ethical funds and against the appropriate Indices. The full paper can be found on our web site.

    After nearly 20 years advising on ethical investments, it is still interesting to note that far too many investors with social, moral or environmental concerns have yet to make the link between their areas of concern and their money. The link is, in reality, quiet simple; if you do not actively choose to invest in a socially responsible fund, most, if not all, of your concerns will be compromised by your investments. So, the next time you are reviewing your financial arrangements, - banking, pensions, life assurance savings, ISAs, PEPs, etc " take a step back and look at whether your are financing companies whose activities you are against, and whether you are actively investing in your future, of that of your children, to make a positive difference. It is your money and your choice.

    Does it make a Difference?

    If one recognises that the most influential part of modern life, like it or not, is the money system, then until this changes, animals, humans and the environment will continue to be abused in the name of profit. Socially Responsible Investment aims to maximise long-term profits balanced with concern and respect for wider social issues.

    It is easy to feel that an individual cannot influence the money system, but we believe this is wrong. The faster Socially Responsible Investment grows, the greater the pressure on the investment institutions, Banks and insurance companies to move away from those areas involving socially irresponsible practices. The rapidly increasing concern amongst the public over the treatment of animals, people and the environment is, we believe, making companies involved in these areas less viable as a long term investment. In other words, the economics of Socially Responsible Investment are now more widely recognized as a sound long term investment strategy. The combination of consumer and investment pressure can bring about lasting change - change which will benefit people, animals and the environment.

    Sound Financial Strategy

    Investing in an ethical and socially responsible way is now acknowledged as a sound medium to long-term strategy. Whilst there will be those who are happy to make easy money at the expense of others, the rapidly increasing trend for individuals, charities and companies is to seek profit responsibly via ethical investment. After all, who would disagree with investing in companies that have good employment records,manufacture products that people want to buy at a fair price, and on which a good profit is made? It is important to remember that much of socially responsible investment concerns the positive sides of business life such as respect for the community (local and global) and for the environment. In these troubled times, an enlightened attitude to our responsibilities to future generations is imperative in business, if a company is going to survive.


    Ethical funds have, overall, performed well compared to their unscreened counterparts. Indeed, in a speech to the 1998 AGM of the UK Social Investment Forum, John Denham MP (then Parliamentary Under Secretary of State for Social Security) confirmed that "research currently underway in this field appears to suggest that ethical funds have performed better than other alternative investment approaches".

    It is becoming increasingly accepted that the socially responsible companies will prove to be an even better financial investment in the future. The rigorous screening processes involved in ethical investment can help to identify companies that, in the long term, have a great potential to do well. The proportion of smaller companies included in such a portfolio is an advantage, as the high performance of smaller companies over the long term is well documented. It must be remembered, however, that past performance is not necessarily a guide to future performance, and that the price of units can fall as well as rise.

    How can I invest Ethically?

    Many of us at some time in our lives will need at least one of the contracts listed below and any of these can be linked to a socially responsible fund. By choosing the contract you need and then selecting the fund which best suits your beliefs, you will be joining growing core of people who are making a positive statement with their money.The contracts available include:


    Ethical or Green Funds

    At this time, socially responsible investment funds generally fall into one of two categories - ethical or green/environmental.
    Ethical funds are administered in accordance with a wide range of ethical criteria, mainly using negative selection to avoid investment in companies associated with certain areas. Most ethical funds will also make assessments in relation to environmental impact. After using negative screening, positive vetting is then applied to many of these funds.

    Green or environmental funds invest in companies whose products, services or processes contribute to restoration and renewal of the ecology or to a cleaner and healthier environment.

    What are the Criteria?

    Generally speaking, the criteria used to select a company considered suitable for a socially responsible fund can be split into two groups. The first are those which make a positive contribution, while the second are those which are known to have a negative social or environmental effect.

    The Positive

    Positive selection will result in support and encouragement of companies that are associated with the following:

    • Environmental protection
    • Pollution control
    • Conservation and recycling
    • Safety and security
    • Ethical employment practices

    The Negative

    Negative selection can result,where required, in the avoidance of companies linked with any or all of the following:

    • Armaments and nuclear weapons
    • Animal exploitation
    • Human Rights Abuse/Oppressive regimes
    • Environmentally damaging practices
    • Poor employment practices
    • Alcohol
    • Tobacco
    • Gambling
    • Pornography


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