Questions about Ethical Investment


What is ethical investment?
How long has Ethical Investment been around in the UK?
Can Ethical Investment cope with different risk levels?
How do I find good advice about all this?
Can I use it for everything financial?
Where did Ethical Investment come from?
Does it perform as well as other investments?
How do I know it’s really as ethical as it makes out?

What is ethical investment?

Ethical Investment is much like any other form of investment except that it adds an additional consideration when the investment choices are being made. Ethical Investment is designed to help those people who have ethical views to put their beliefs into their investment decisions.

So if you hold opinions on any of the following then ethical investment might well be for you:

- The production or sale of armaments
- The manufacture and use of pesticides and ozone depleting chemicals
- Animal experimentation
- Intensive farming
- The production and sale of tobacco and /or alcohol
- The manufacture and sale of pornography
- Companies which trade with countries which abuse human rights
- Environmental pollution
- Nuclear power
- The importation of tropical hardwood from unsustainable sources
- The development and use of genetically modified organisms.

With ethical investment it is possible to choose to avoid investing your money in any of the above and to choose to invest in companies which may, for example:

- Make a positive contribution to the community e.g. those involved in producing housing, public transport, health care products and services (not animal experimentation)
- Seek to protect human rights and are responsible about the impact of their activities in the countries where they operate
- Demonstrate environmental initiatives including pollution control and alternative energy
- Respect animal welfare
- Are open about their activities
- Have good working conditions and policies e.g. equal opportunities

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How long has Ethical Investment been around in the UK?

In 1984 Friends Provident brought Ethical Investment to this country and has successfully run the Stewardship Fund ever since. When first launched it had to carry a 'wealth warning' which warned people that investing ethically might not bring them the financial rewards that other funds might. In fact it was nicknamed the Brazil Fund in the city – not because it was investing in Brazil but because it was nutty!

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Can Ethical Investment cope with different risk levels?

Some people prefer to invest their money in a fund with a higher potential rate of return but which carries a higher risk. Some prefer to opt for lower risk, lower returns. Ethical investment can offer this choice. One company alone offers a choice between an ethical “tracker fund”, a managed fund and an all out equity growth or income fund – which all offer different levels of risk and return. This can all be explained to you in much greater detail.

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How do I find good advice about all this?

EIRIS can provide a list of ethical/green Independent Financial Advisers around the country. It is important to ask the IFA:

- How long they have been specialists?
- What percentage of their business is ethical?
- How many clients do they have?
- Do they work on fees or commission?
- What back up do they have if they are unable to work?

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Can I use it for everything financial?

Ethical Investment can be used for any of the following:

In addition there is a range of ethical savings scheme that are bank or building society based. What if I want to invest in other markets? Ethical Investment Funds offer investments on the UK, Europe, America and Global markets. As countries need effective governmental monitoring systems in order to measure the activities of the different companies the UK, American and European funds tend to dominate.

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Where did Ethical Investment come from?

Ethical Investment started in America. The Methodist Church decided that investing in the stock market was no longer to be regarded as gambling. However, they did not want to invest church funds in tobacco, alcohol, or gambling. Thus was born the very first ethical fund (or screened fund, as it should really be known.)

For a number of years institutions were operating screened funds. Then the Vietnam War started and individuals demanded the right not to invest in the war or the arms suppliers, so screened funds for individual investors were created. Since coming to England it has flourished – in fifteen years it has attracted over £2 billion and currently has some 314,000 investors*.

Since 1984 there have been many ethical funds introduced to the market. At the beginning of 1999 there were about forty funds – and new ones are being added almost daily.

*Source: EIRIS (Ethical Investment Research and Information Service) April 1999

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Does it perform as well as other investments?

Recently a detailed study by The Ethical Investment Research Information Service (E.R.I.S.) said that the performance of ethical funds compares well with other funds, although some perform better than others. There is no reason to believe that investing ethically will adversely affect the performance of your investment. In fact in some market conditions you can expect superior performance. The research showed that the essential difference was the fund manager – picking the right one would give you better than average returns, picking the wrong one...

Of course, with any equity backed investment, the value of your investment can fall as well as rise. You may not recover the full value of your investment. Past performance is not necessarily a guide to future returns.

Specialist, independent advice will help you decide which will be the best funds for you, both financially and ethically.

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How do I know it’s really as ethical as it makes out?

When choosing an ethical fund for their client a responsible green/ethical Independent Financial Adviser (IFA) will consider both financial performance and ethical profiling. This is what we do at Investing Ethically.

We gain the financial performance indicators from many sources - information from the companies, the Internet, professional journals etc. We also spend time getting to know the fund managers. It is a mixture of objective information and professional judgement. It is always worth asking how many fund managers an IFA actually knows.

Undertaking an Ethical Profile for a client is a similar process to assessing financial performance. A green/ethical IFA might use the information published every six months by the Ethical Investment Research Information Service (EIRIS). This independent body examines the investments made by each of the funds to see how they measure up to the ethical criteria listed above. EIRIS scores each company by a number of sub-categories and also awards an overall score. They then award an overall avoidance score.

We ask our clients to complete an ethical checklist and try and match this with the profile of a company. Sometimes we cannot get a perfect match and we have to ask for a compromise. Sometimes the performance of a fund that doesn't quite match might be better than the one that does – so you have to make a choice.

Through this process you should feel that it is your views and your money that counts – our job is helping you come to the choices that suit you, for product, for fund, for investment level.

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