A GUIDE TO ETHICAL INVESTING

More and more people are taking an interest in green and ethical issues, covering subjects as diverse as human rights, climate change and genetically modified foods. Nowadays, you can choose to actively support or avoid these causes through everyday activities such as buying organic food, donating to particular charities or using recycled products. There are also increasing opportunities to make ethical choices when it comes to your finances.

Helpful Hint

You can choose to support companies that you feel are making an effort to be ‘green’ or avoid companies involved in activities that you do not agree with.

If you are worried that the companies in which you invest might be exploiting Third World countries or damaging the environment, or if you have concerns that you may be supporting company activities that you don’t approve of, you may be interested in ethical investment, also known as Socially Responsible Investment (SRI).

WHAT DO YOU WANT FROM YOUR INVESTMENT?

Different people have different principles and not all ethical investment funds have the same objectives. Some look to invest in companies that make a positive contribution, while others specifically avoid certain companies because they may undertake activities that the investor disagrees with. For example, ethical investors may avoid companies involved in activities believed to be harmful, such as tobacco production and pornography, whilst others may wish to support companies which make positive contributions to society, by being environmentally friendly. There are also ethical investment strategies which try to balance both the avoidance of some activities whilst pro-actively supporting others.

There are ethical funds that go further still by using shareholder pressure to bring about changes in company policy. By joining forces with other investors some ethical funds have successfully influenced several companies to change their practices.

Ethical investment funds use a screening process to ensure that the companies they invest in are the right ones to meet their ethical policy. The screening will remove companies considered to be ‘negative’ and will encourage investment in ‘positive’ companies. Examples of negative and positive criteria are examined in the following tables.

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