Can you be an ethical investor?
It's national ethical investment week, but can you truly be ethical and invest at the same time? Here's our guide on how to do it.
The amount of money invested in ethical funds is nearly three times as much as a decade ago, according to the Investment Management Association. In June 2011 it recorded over £7 billion worth of funds under 'ethical' management.
What makes an investment ethical?
Despite the surge in popularity there is no definite definition of 'ethical investing'. This means investors may find it hard to decipher if a prospective ethical investment is truly ethical.
The investment industry has several different ways to measure whether an investment is or isn't ethical.
Rather than looking for specific ethical or socially responsible ethical investments, negative screening filters out stocks that wouldn't sit comfortably in an ethical category – think arms, tobacco, oil, gambling, deforestation and regimes with a poor human rights record. That means whole sectors can be discounted.
Seeks out the companies and stocks that are committed to producing goods or services that will benefit the planet – be it environmental, such as forestry and renewable energy projects, or humanitarian, such as welfare, healthcare and disaster management.
Light green funds
Less restrictions allows light green funds to invest in larger companies – even in some unethical sectors like animal testing and pesticides. Because the inference is taken away from the specific sectors, the focus is on companies that are well managed and socially responsible – known as a 'preference strategy'.
Medium green funds
A halfway house between light and dark green funds, medium green funds are still exposed to some stocks of companies that have a less than perfect record.
These have the tightest restrictions in place and will automatically exclude all stocks that have any exposure to non-ethical sectors. Research teams will also look to seek out companies that are actively engaged in bettering society or the environment rather than simply holding a neutral position.
Can savers be ethical too?
Rising inflation means savers have all but given up hope of finding a savings account that matches, let alone beats inflation. Saving with ethical banks like Triodos and the Co-operative Bank won't offer the best interest rates but at least you know your money will have a positive effect.
Research from Triodos Bank shows that 74% of UK savers would like to see the banks do more to help society.
Triodos calls itself a sustainable bank and promises to only use customers' money to help people and businesses who are working towards 'a positive change'.
Meanwhile, the Co-operative has vowed to extend its commercial lending to ethical businesses and causes to £9 billion this year.
Finding an ethical IFA
Although ethical or socially responsible investments (SRIs) are growing in popularity, it's slow progress – especially when 76% of non-ethical investors claim their independent financial adviser hasn't mentioned ethical investing to them, according to a survey conducted by Ecclesiastical Investment Management. The fund manager also reveals that 64% of these non-ethical investors would consider investing in SRIs if their adviser had gone through the options with them.
To find an IFA with an ethical approach, go to the Ethical Investment Association's website (ethicalinvestment.org.uk).
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.