How Ethical Investing Works

Most of us have a greater awareness over how our actions and those of companies impact on the environment. 

Television programs such as Blue Planet and news stories regarding plastic waste, deforestation and climate change have raised awareness of the issues facing us. They have influenced people’s thinking and seem to have created an increased demand for ‘ethical’ style of investing.

The sustainable and ethical investment sector has reacted to this increased demand and new funds have been introduced by fund managers.

The challenge is how you measure the ethical nature of an ethical investment fund. Who determines what is deemed to be ethical or not? Aspects that one investor thinks are acceptable may not be to others.

Fund managers and analysts tend to use a measure referred to as ESG in which they measure the Environmental, Social and Governance of a company which a fund invests in. There is a also a ‘green’ term associated with many ethical funds which determines how green a fund is – a ‘dark green’ approach would tend to exclude certain industries entirely such as Arms-Dealing, Alcohol or Tobacco. Some funds may also look to invest in companies that can evidence they are making a positive impact environmentally or socially.

In all scenarios, the importance of selecting the investment solutions which meet a person’s requirements, objectives and beliefs are paramount as not all ethical funds are the same. Investors should be prepared to look under the bonnet of a fund in order to ensure that it meets with their approval.

Ethical investing can also be more volatile and investors should be prepared for this. As with all forms of stock market investment; the value of investments and the income from them can fall as well as rise. You may get back less than you originally invested and past performance is not a reliable indicator of future results.

It is therefore important that anyone considering an ethical investing strategy seeks financial advice from a suitably qualified financial adviser to help research the market and support them with this process.

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