• ETHICAL INVESTMENT

• Ethical investment explained
• Is it for me?
• How to choose a fund

You may have some money to invest – either :

• a lump sum or a regular amount;
• an existing ISA, unit trust or OEIC, or maybe some shares;
• an existing portfolio – a number of investments which you’re open to switching.

Perhaps you haven’t seriously considered investing ethically before now, but having explored this far, you’re interested... .

We believe that money itself, in whatever amount, is an ethically neutral commodity, a means of exchange and a measurement of value. How money is used, however, could certainly be said to be an ethical issue.

So why might you, as a prospective investor, want to invest ethically?

Consider the following statistics:

• Ethical investment is the fastest growing theme in the investment world at the moment.
• There was a ten-fold increase in ethical funds in the UK between 1997 & 2001 (to £224bn).
• UK retail ethical funds are now in excess of £4bn (with over 500,000 private investors), and over £10bn overall.
• The first ethical / socially responsible unit trust in the UK , Friends Provident’s Stewardship fund, launched in 1984 with the aim of attracting £2m of funds: it now has £2bn under management.
• A 1999 poll showed that 83% of UK adults wanted their pension funds to have an ethical investment policy.
• Increasing statutory momentum & support - Since 2001, those responsible for running pension funds have been required to disclose whether they have an ethical investment policy or not (they are not legally obliged to include such considerations, but they are obliged to say whether they have or have not applied them).
• The example of the universities’ (USS) pension scheme, whose members have voted to have their funds (c.£22bn) invested according to ethical criteria, shows that major pension funds have begun to act on members’ wishes and engage with the ethical issues inherent in investment. So, you’d be in arguably good, learned and illustrious company... !

So perhaps ethical investment fits today’s culture of increased engagement by individuals and shareholders, catching the mood maybe, but why else might you be interested?

• Performance – There’s a growing amount of research which shows that there’s no performance trade-off to be suffered if you choose to invest ethically. In fact, the opposite has been the case: some of the longest-established and best-known ethical funds have been outperforming the majority of their non-ethical peers, even in recent difficult and volatile markets.



• Sustainability – That same body of research increasingly seems to suggest that, because of their outlook and investment criteria, actively managed ethical investment funds in particular are also more likely to invest in companies, industries and practices which are thought more likely to be sustainable over the long-term. Sustainable business should be better business.

Sustainability isn’t just about doing more good and less damage to people and the planet, it’s also about finding investment opportunities which can hopefully deliver sustained growth and profits into the future. You intend your investments to be there for the longer term: wouldn’t it make sense if the funds & companies in which you invest had the same perspective?

• Consistent values – Investing ethically gives you the opportunity to re-align your finances (your “money life”) with the kind of values you’d like to apply in other areas of your life.

Do you already, for example, prefer to buy free-range eggs? Do you re-cycle? Do you sometimes walk instead of taking the car, give lifts, car-share or use public transport? Are you careful about your use of water? Do you buy products which are fairly traded, sourced ethically, or which wear the Fairtrade mark? (Fair Trade sales increased from £100,000 in 1999 to £7.5m in 2003)

If, to take another example, you use an ethical bank for your day to day (shorter-term) money needs, you can also apply the same thinking to your longer term finances i.e. your investments.

• Good for you, good for others –Your investments, whilst hopefully generating a positive return for you and helping to build a sound basis for your own financial future, could simultaneously be helping to benefit both people and the planet, or at the very least be invested in such a way as to minimise their contribution to the challenges faced by both, problems such as environmental pollution & global warming, energy use, human rights, labour & health issues, the use and management of water, arms proliferation, pornography, tobacco, animal experimentation, and many other issues which may be of personal concern to you and your family.

• Control - Deciding to invest ethically gives you more control over how and where your money is invested and used. The opportunity of ethical investment gives you a means of making a positive contribution and minimising possibly negative effects.

• Positives Included: Negatives Excluded – The fact is (and it’s a bit like deciding whether or not to bother making a will), if you don’t take active steps to decide how & where your money’s invested, someone else will make that decision for you. Wouldn’t you prefer to be able to make such a fundamental choice yourself, and according to your own preferences?

• Peace of Mind (The Feel-Good Factor!) - Although not strictly an investment or financial criterion, there is no doubt that many ethical investors say they benefit from an increased peace of mind. Ethical investors simply feel better about their finances, knowing that they have taken steps to try to invest according to their own ethics, and in a more socially responsibly manner than the alternative.

• What is the alternative? Frankly - and be warned, this is not necessarily for the faint-hearted – you might think of the issue this way. If you decide you’re able, willing and in a position to invest, but you actively decide not to invest ethically, ask yourself this question. Are you happy, therefore, that the money you’re about to commit could be used to support companies and governments which are involved in industries and practices involving (in no particular order): the manufacture, sale & promotion of tobacco and alcohol; gambling; pornography; employment & labour exploitation (including that of children); human rights abuses; poor safety standards; nuclear power; environmental degradation; the harmful & illegitimate use of water resources; pollution & global warming; the burning of fossil fuels; arms production; animal experimentation?

Are you happy? Does the prospect leave you feeling more contented, or rather uneasy?

A couple of quotes with which to end this section...

“I wish decision-makers would simply apply their personal value system to the decisions they are making. I have confidence that most people have a good supply of common sense and decency at a personal level. However, too many decision-makers leave their values at home instead of bringing them into their office and applying them in business decisions” (an ethical fund manager).

“I wish people would pause before they sign up to an investment, and just think about how their children, and maybe even their children’s children, might view it and what they would decide about the deal” (Anon).

So – ethical investment..... is it for you?

back to top