You are here: Home - Investing -

Feature: Ethical investment

0
Written by:
03/12/2012
Investing in ethical funds is a growth area, and there are good returns to be had in the right places.
Feature: Ethical investment

Ethical investment is a growing trend and its days as a niche market appear to be disappearing fast. While some dismissed ‘going green’ and Fairtrade as passing fads, they’ve quickly gained momentum, and the same can be said for socially responsible investment (SRI), which is of significant importance to the forward-thinking investor. Since the near collapse of the banking system and rapid decline in the global stock markets, there have been increasing levels of concern over the stability of traditional investments which people have often relied upon heavily as their nest egg.

And these events have led to much better awareness of how financial institutions use their customers’ money. There’s also evidence to suggest that recent misdemeanours in the banking sector, such as the Libor rate-rigging scandal, have led to more people than ever reviewing ethical options.

Triodos Bank, for example, which provides a range of ethical accounts, says it witnessed a 51% surge in applications, and opened three times more accounts than average, the day before Barclays boss Bob Diamond resigned as a result of the scandal.

Alongside this, as the global economy has struggled, awareness of global warming has increased, the world’s population has continued to grow at a rapid pace, people are becoming more concerned about human rights, and the nation is become increasingly aware of the impact of its choices. Just how much is reflected in figures from EIRIS, the non-profit sustainable investment research firm.

These show that the amount of money invested in Britain’s green and ethical retail funds reached a record height last year of £11.3bn, and that over the last decade, the number of ethical investors has tripled, from 250,000 to three-quarters of a million.

 

What is ethical investment?

 

Ethical investment basically allows you to invest in a socially responsible way, without having to compromise your principles and moral stance. You can choose to invest directly into companies or projects which meet ethical criteria, or look at ethical funds which can be growth or income generated. In terms of projects, there are several different types to consider.

Many investors are opting for carbon offsetting, where you help to fund a project which will reduce or remove a metric tonne of carbon emissions from the atmosphere. The company involved will package carbon dioxide emission reduction units into credit bundles that can be purchased as carbon credits.

There are many other investment projects too, from forestry investments in Brazil that aim to eradicate illegal logging in environmentally-sensitive areas, to bonds that invest in bamboo plantations in Central America, and farmland investments in Australia which will produce food to help ease global shortages.

With regard to ethical funds, there are now a large number of these available in the UK and they’re often categorised in various shades of green, depending on the criteria they apply to their investment decisions.

A ‘dark green’ fund is a term used to describe a fund which applies strict negative screening before investing in a company, and exclude companies involved in unethical practices such as defence or pharmaceuticals. A ‘light green’ fund is a term used to describe a fund which uses positive screening and invest in companies which are making a positive contribution to the environment, or which have a good ethical track record.

Some funds combine both screening methods with a ‘best in class’ approach. So, while a company may invest in the oil and gas sector, it will only invest in those which are doing the most to limit their environmental impact, or to improve their ethical performance.

Other funds ‘engage’ with companies by using the manager’s power as a shareholder to positively influence corporate behaviour regarding areas such as the environment and human rights.

 

You can have profits and principles

 

Over the last two years, there’s been significant growth in so-called ‘ordinary’ investors who are finding that SRI fits their financial requirements. People who may previously have invested in property or dabbled in the stock market are looking for something different, but while they’re more conscious of the environmental and social impact their choices could make, they’re by no means prepared to sacrifice good investment sense to buy into such products.

No investor wants to settle for a serious compromise on returns, and they should never think that it’s a choice between ethics or growth. Choosing to invest ethically actually means that the two can go hand in hand. SRI typically involves investment in the few industries which have managed to remain in positive growth through the global recession.

Emerald Knight, for example, has had some very positive results over recent months, including double digit returns on a teak forestry project after the first year of investment. Since people have lost trust and confidence in the more traditional investment models, the returns demonstrated by SRI products combined with their social, environmental and ethical benefits make for a very compelling investment case.

 James Howard is a director at Emerald Knight, which specialises in socially responsible investment

Tag Box

Debt

Pension

Spending

Financial fitness

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2229034-shutterstock-6834553
Cost of flatsharing dips

Rents for flatsharers fell for the first time this year between August and September, reducing by 1%.

Close