Wealth

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Ethical investing

What matters more to you when you invest? Your principles or profit?  They’re not mutually exclusive. Society’s increasing awareness of environmental and social responsibilities is impacting on financial services. Investments, bank accounts, pensions and mortgages based on ethical principles are now widely available

According to the Ethical Investment Research Service (EIRIS), a provider of independent research on the environmental, social, governance (ESG) and ethical performance of companies, approximately £11.3bn was invested in the UK’s green and ethical retail funds in 2011 compared to £4bn in 2001

How do I invest ethically?

The easiest route to ethical investing is through managed funds. Because it can be difficult for you to judge whether a particular company is operating ethically or not, most ethical investments are held through managed funds

There are some 90 funds in the UK that apply ethical or environmental criteria. Some of the major funds include ones from: Aberdeen, CIS, Clerical Medical, Credit Suisse , Framlington, F&C, Henderson, Jupiter, Legal & General, Lloyds TSB, Norwich UK, Scottish Equitable, Sovereign and Standard Life

Most of the major names will offer a regular savings scheme where the minimum monthly investment is typically £50

However, which one you go for will depend in part on what shade of green you are. Some ‘dark green’ funds take a very strict line on a range of issues such as animal testing, pollution and pornography, and will not invest in companies that have anything to do with such activities

Then there are “light green” funds, some of which tend to adopt a ‘best of sector’ approach. They will invest in companies in the more controversial sectors such as oil and pharmaceuticals, but will seek out those doing something positive to improve the environment or that have a good record on workplace practices

Be aware that criteria such as this will always be open to interpretation and manipulation which poses the question: how ethical is ethical? If you invest through a fund check that fund’s stated policy. However if you invest directly in shares you will have to decide which ethical values are the most important to you

The Your Ethical Money website features details of all the main funds’ ethical policies

Meanwhile, professional advice website unbiased.co.uk has a “find an IFA” search tool allowing people to search for a local financial adviser with expertise in ethical investment

Community Investment

Another route to ethical investment is putting money into community projects. If this strikes a chord with you, it might be worth investing in one of the growing band of community interest companies (CICs) that are now vying with the banks for your money

CICs were developed to address the lack of a legal vehicle for non-charitable social enterprises across the UK. Available since 2005, there are now over 3,100. CICs vary in size from tiny community-based organisations to multimillion pound enterprises. Their areas of operation include hydro-electricity, solar power, physical well-being, radio and television, the arts, education, and health and social work

Fundamentally CICs are normal companies. They can be established either as companies limited by guarantee (CLG), which around three-quarters are, or companies limited by shares (CLS). However, they have some unique and important additional features to safeguard their social mission

A CIC has to carry out activities which fulfil a community purpose. This is defined when an application is made to set the CIC up. There are a huge variety of purposes which meet the so-called ‘community interest test’. These range from promoting the healthcare of residents of a particular community to promoting climate change awareness programmes or reducing greenhouse gas emissions

Before you reach for your cheque book, be aware that investing in such schemes is not without risk, and you could lose your money if the schemes go disastrously wrong

Making the rest of your finances ethical

If you’re interested in ethical banks and building societies, there are a few which ethically screen their business including Co-operative Bank, Shared Interest and Triodos Bank. The Ecology Building Society and Norwich & Peterborough Building Society offer energy-efficient or ‘green’ mortgages if you plan to renovate or make your home energy efficient. All offer ‘green’ Isas of one sort or another

Occupational pension schemes can now invest in ethical pensions and if you are not eligible to join a scheme you can always take out your own ethical personal pension. Where a provider doesn’t specify an ethical fund it’s still worth checking if one is available, as many stock market funds can be placed in a pension wrapper

You could also move your car insurance to a provider with a track record of sound ethical policies. Providers include the Environmental Transport Association, which does not lobby for more roads

Ethical investing as a pressure tool

If you have a concern about a company you have invested in, write to the chief executive or go to the annual general meeting when the company’s board has to face its shareholders and answer questions. You could also join a pressure group that adds a communal voice to a concern

Where to find out more

The best source of information is Your Ethical Money set up by EIRIS, a charity aiming to raise awareness of ethical investment. It doesn’t offer financial advice but can point you in the direction of people who can. It also provides a number of useful leaflets on a range of financial issues. Many specialist ethical IFAs are also contactable through the UK Social Investment Forum

EIRIS can also provide details of pressure groups and shareholders campaigns in its newsletters. And, for a fee, EIRIS will screen your existing portfolio for positive and negative features and create a list of companies that match your chosen ethical criteria

You can also read fund managers’ stated investment policies – these are published and available to any would-be investors. Many financial advisers have computer databases that scan the ethical composition of most of the major investment funds

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User Responses

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  1. Ron Robins

    January 26, 2012

    I’m glad to see you covered ethical investing.

    Surveys all-over-the-world show that most investors want to invest in ethical companies and don’t want their investments being the cause of grief to others. Then since so many of our core values are alike — and are supportive of higher ideals — that in the long run, only companies employing these higher values will likely prosper.

    I’ve been following ethical investing for some forty years.

    In 2003, I founded a site to educate investors about ethical/socially responsible investing. It’s now one of the foremost global sites on this topic.

    It covers the latest related global news, research, books, links, articles, etc., and according to Google rankings is one of the world’s most popular on this subject. It’s at http://investingforthesoul.com/

    Best wishes, Ron

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