Why Invest Ethically?
A study by the Institute of Business Ethics in 1998-99 showed that companies committed to ethical conduct had on average 18 per cent higher profits. The stock market treated Ethical Investments with some derision in the 80s, however it has come to recognise the significance such funds can have.
Ethical Investment has its history in the Methodist church in the 1920s who wanted to invest in the stock market but wanted to avoid companies in the alcohol and tobacco industries, the Quakers followed this initiative and weapons manufacturers became the next main group of companies that were avoided. Ever since then, churches have led the way in ethical investments; in recent years, socially responsible investing has become a force for change reflecting social trends in society such as human and animal rights and concern for our environment.
The first ethical trust was launched in 1984 (the Friends Provident Stewardship from Friends Provident a life insurance company set up by the Quakers in the 1830s), by the year 2,000, the ethical investment market in the UK alone had grown to £3.7 billion, Norwich Union research estimated that the size of the market in the USA in the year 2,000 was in the region of $1.185 trillion. In 1991, the UK Social Investment Forum was formed bringing together key figures to advance the agenda of socially responsible investments.
From the 3 July 2000 all occupational pension funds with a "statement of investment principle" were required to publish their approach to "non-financial" factors such as environmental, social and ethical issues. Of the top 500 pension funds, 59 per cent now seek to incorporate socially responsible investment in their strategies.
Ethical investments are also referred to as sustainable long-term investments or Socially Responsible Investments, surprisingly, some of these are not as “green” as others and widely varying ethical principles are used within the field of ethical investments.
The over riding principle is that funds are chosen on the basis that money is invested in companies acting in a socially responsible way; in some respects the distinction is straightforward - ethical funds will not include companies in the armaments, tobacco, pesticides, nuclear, pornography or gambling industries or those who utilise animal testing, have poor health and safety records and those who trade with countries with oppressive regimes. The difficulty arises in cases where for example a company is known to pollute the air, but at the same time are investing heavily in developing ethical sources of power generation; it is exactly this sort of company that can be a powerful force for change in the world, and as such some individuals may seek out such companies.
The principles fund managers usually employ for selecting ethical investments are as follows;
Negative screening - If a company is involved in a series of predetermined, negative activities, they will not be selected. So called "Dark Green" funds employ very strict negative screening.
Positive screening - If a company can meet a number of a list of positive practices, they will be considered.
Thematic investment - Innovative companies representing industries of the future such as renewable energy and waste management, share values may be more volatile in these growth industries, but may yield the highest long term returns.
Best of sector - "Invest in the best, encourage the rest", the Oil industry is considered far from “ethical”; however there are companies funding research and development – these would fall into a best of sector category.
Selecting ethical funds then can be a complicated process requiring extensive research; there are a range of companies who deal purely in socially responsible investments, in addition many Independent Financial Advisers offer specialist advice on the right investments.
Use the search box at the top of the page to find specialist ethical IFAs and Ethical Investment companies in your area.
The Ethical Investment Research Service (“EIRIS”) was set up in 1983 with the help of churches and charities; this organisation carries out independent research and publishes useful consumer guides. They do not offer financial advice or investment services but do offer a free information pack, they can be contacted on 0845 6060324.
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