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Ethical Investments

Ethical investments have been available in one form or another for many years but public perception has recently changed due to concern over climate change and other social issues such as third-world debt. Increased public awareness in these areas has made these types of investments increasingly popular.

Investors will generally look at ethical investments for one of two reasons:-

They wish to take a socially responsible approach to their investment portfolio, aiming to avoid companies that have a negative impact on the environment or on social issues, or;
They see significant growth opportunities in companies who are likely to benefit from improvements and developments in these areas.

For larger Portfolios, investors have the option to invest directly into companies that they feel meet certain “green” criteria, either through a self managed portfolio of via a stock broker.

However, for many private individuals, it may be more appropriate to look at “collective” type funds, ie, unit trusts, investment trusts, open ended investment companies (OEICs) and pension funds, etc. More and more investment managers are becoming aware of investors’ wishes to tap into this relatively niche market which has meant that there is significant choice when looking at the most appropriate ethical investment fund for you.

Ethical investment funds can take one of two approaches. Either:-

Light Green – avoiding stocks that have a negative impact on the environment and its people. For example, avoiding companies in the oil sector or those involve in arms, alcohol or animal testing.
Dark Green – targeting those companies actively making a positive contribution to the environment and its people. For example, those companies developing renewable energy sources.

A dark green fund is, by its very nature, more likely to invest in small and medium sized companies in markets which are developing such as clean energy and green transport whereas the light green funds will have a significant holding in larger companies, for example, telecommunication companies and banks.

It is possible now to find ethical funds which can invest in equities or fixed interest securities (bonds) and which are growth or income orientated. In theory, being a socially responsible investor should not impact significantly on your investment planning. As with all investments of this type, however, it is important that professional impartial advice is sought and when choosing a fund you take into account your overall objectives and investment risk profile.

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