Ethical Investing - The Lowdown

This Saturday marks the start of Good Money Week, a campaign to help grow and raise awareness of sustainable, responsible and ethical finance. Its aim is to let everyone know they have ethical options when it comes to their finances so investors can have a positive impact without sacrificing wealth.

Ethical investing has grown in popularity amongst all generations and is no longer seen as something just for hipsters. The UK’s first ever ethical investment product, the F&C Stewardship Growth fund, was launched in 1984 and was nicknamed the ‘Brazil Fund’ as some experts believed you’d have to be nuts to invest in it.  Today ethical investing is relatively mainstream, and has even been shown to outperform some conventional market indices. It’s estimated that today over £16 billion is invested in ethical funds in the UK alone and over $80 billion globally.[1] There’s now a plethora of options for those who want to invest responsibly. Here a few of the main types:

Ethical Investing
The aim here is to avoid investing in “sin stocks” (typically companies profiting from products considered harmful such as gambling, tobacco, weapons and adult entertainment). Most ethical funds will also make sure that they are not investing in companies involved in deforestation, intensive farming, genetic engineering or operating under oppressive regimes with poor human rights.

Environmental, Social and Governance (ESG)
This focusses on companies that demonstrate a positive environmental impact. This includes climate change, greenhouse gas emissions, resource depletion, waste/pollution and deforestation.

Socially Responsible Investing (SRI):
Aims to achieve positive social outcomes through investment. SRI is usually a blend of Ethical and ESG investments.

Impact Investing:
Focusses on the outcome (or impact) of an organisation’s work on the planet and its people. Unlike the other options Impact Investment Funds might be happy to hold investments in companies involved in potentially controversial actions (like GM foods) providing they are taking steps towards a greener, more sustainable approach.

Sustainable Investing:
This is a broad approach to ethical investing that includes elements of all the above. This option is the most popular with today’s socially conscious investor.

Considerations for investors

If you’re thinking about investing ethically it’s important that the following factors are taken into account:

  • Funds that match your ethical considerations may not necessarily match your attitude to risk

  • The range of funds and asset classes is limited as most are global equity funds

  • Ethical funds may be higher risk as they have a smaller universe of allowable stocks in which to invest

And finally…

Ethical investing is led by your individual ideas and principles and what you believe to be important. If you’re interested in ethically investing we can take you through a questionnaire designed to help you select the criteria that is most important to you. This will help to build a portfolio of funds that matches your own ethical stance to investing, as closely as possible. For more information on ethically investing please call the office on 01454 632 495 or contact your Aspira adviser.

The value of an investment and the income from it may go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The contents of this article are for information purposes only and do not constitute individual advice.

 

[1] 5 definitions of ethical investing, www.wealthify.com, viewed 25/09/18

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