Ethical Investments
Introduction
Ethical investing is about choosing to do more with your investment than just look for a good return on your money. There's no ethical investment sector in funds, although there is an ethical stock market index - FTSE4Good. What is ethical and what is not are often different things to different people.
Put simply, ethical investment seeks to invest in companies which make a positive contribution to the world and seeks to avoid companies which harm the world, its people or its wildlife. It is difficult for an individual investor to judge whether a particular company is ethical or not. Therefore, most ethical investments are held through a managed investment fund such as a unit trust or life insurance or pension fund.
There are funds which merely exclude investment in specific activities or industries such as tobacco, gambling, alcohol and armaments. Others take a more pro-active stance, actively looking to invest in companies involved in environmentally sound, socially progressive businesses.
A third way, which evolved in the late 1990s, goes further. It is based on the belief that ethical or socially responsible investment should go beyond the 'avoidance' or 'supporting' approaches described above. Often called an 'engagement' or 'influencing' approach, here the investment fund will not apply any screening criteria to its investment choices. Instead, the fund manager undertakes to create a dialogue with a certain number of companies in the portfolio on a specific number of social and environmental issues. The aim is to encourage them to adopt the best business practices. Those companies which are already demonstrating a good performance in this area, are encouraged to continue to set the highest standards.
Although there is no defined ethical sector, the Asssociation of Investment Companies does have an 'environmental' sector classification for investment trusts.
Since the launch of the UK's first range of ethical investments by Friends Provident under the Stewardship banner in 1984, other financial institutions have entered the market, and there are now more than 80 different ethical and socially responsible funds to choose from.
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