Research out this week from the Ethical Investment Research Services (Eiris) showed that record numbers of individuals are investing with a conscience: the level of investment into UK ethical retail funds hit £6bn last year. Increasing numbers are taking the moral
Research out this week from the Ethical Investment Research Services (Eiris) showed that record numbers of individuals are investing with a conscience: the level of investment into UK ethical retail funds hit £6bn last year. Increasing numbers are taking the moral high ground on a wide range of issues, from weapons development to tobacco production to nuclear energy. You can now even get an environmentally-friendly mortgage.
So what is ethical investment?
Ethical – or socially responsible – investment is influenced by social, environmental or political issues. Ethical funds typically either look for companies that are actively pursuing ways of improving the environment, international relations or the economy, or avoid companies that they consider have a potentially negative effect on the way we live.
What is the background to ethical investment?
It dates back to the 19th century, when religious movements such as the Quakers and Methodists voiced concerns over issues such as fair employment. At the turn of the 20th century, the Methodist Church began investing in the stock market, but avoided companies involved in alcohol and gambling.
The first ethical fund – the Pax World Fund – was set up in the US in 1971 as a stance against the Vietnam War. In the 1980s the apartheid regime in South Africa accelerated the promotion of ethical investment. Eiris formed in 1993 to provide independent research for ethical investors and the UK’s first ethically-screened unit trust – Friends Provident’s Stewardship Fund – was launched in 1984.
What types of funds are there now?
The range of funds has grown enormously over the past decade. There are currently 75 ethical funds in the UK, and three more are to be launched this summer. Some funds avoid companies that, say, manufacture weapons, develop nuclear power stations or produce cigarettes and alcohol. Others invest in companies that are actively looking to better the environment by developing renewable energy techniques, recycling or helping poorer economies. There are also funds that invest in “vegan” companies, which avoid anything to do with meat or meat products.
How do funds screen the companies they invest in?
Most funds have their own ethical committees to decide the criteria. The fund’s objectives are usually set at launch and do not vary. Some committees have the power to veto every stock, while others will take a more advisory role.
There are different levels of screening. A “positive” approach means that the fund manager will only invest in companies that are actively working to improve the world in some way. These invest in the so-called “industries 