What is an Ethical Investment?
What is an Ethical Investment?
Simply put, an ethical investment
seeks to invest in companies
that make a positive contribution
to the world, and seeks to avoid
companies that harm the world,
its people or its wildlife.
There are funds that merely
exclude investment in specific
activities or industries such
as tobacco, gambling, alcohol
and armaments. Others take a
more proactive stance, actively
looking to invest in companies
involved in environmentally
sound, socially progressive
businesses.
Real expansion of ethical investments
occurred through the late 1990s
and 2000s and means there is
now an extensive range of funds
available. It has been true
in the past that some ethical
funds have lagged their non-ethical
counterparts (partially due
to the growth of non-ethical
companies), however now that
more emphasis is being placed
on the environment by governments
and individuals alike environmentally
conscious funds offer an interesting
opportunity. Luciano Diana,
manager of the Pictet Clean
Energy fund made the following
commentary:
“The fact that government
support for clean energy is
increasing despite the current
economic climate makes the sector
even more remarkable. We believe
that overall energy prices will
increase over time, on a three
to five year time horizon. Support
for the valuations of renewable
energy companies will be greater,
because the higher oil and gas
price, the more attractive wind
and solar energy become on a
relative basis.”
An ethical fund is an equity-based
investment intended for medium
to long-term investment, so
its value can reduce due to
stock market movements, although
it can also rise. This means
you may not get back all the
money you invested.
Levels and bases of, and
reliefs from, taxation are
subject to change and any
tax reliefs referred to are
the current ones and their
value will depend on the circumstances
of the individual investor.
Investment Criteria
Ethical, or Green funds generally
operate on the following bases:
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Positive
Criteria |
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Provision
of excellent products
and services, which are
of long term benefit to
the community
Conservation of energy
or natural resources
Environmental improvements
and pollution control
Good relations with customers
and suppliers
High employee welfare
standards |
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Negative
Criteria |
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Environmental
destruction
Unnecessary exploitation
of animals
Trade with oppressive
regimes
Pornography
Weapons manufacture
Tobacco or alcohol production
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Most UK ethical funds are based
on a combination of positive
and negative investment criteria.
Some emphasise the former while
others concentrate on the latter,
and some try to strike a balance
between the two.
Most ethical fund managers
use external consultancies
such as the independent Ethical
Investment Research Service
(EIRIS) to screen companies.
EIRIS was originally set up
in 1983 with the help of churches
and charities, which had investments
and needed a research organisation
to help them put their principles
into practice. Most ethical
funds have panels, which set
their criteria and establish
an approved list of companies.
Ethical funds are intended
as medium to long term investments
(usually considered to be
five years or more). Because
they are equity-based, they
are dependent on stock
market
movements. It also means your
capital is not usually guaranteed
to be safe and so you may
lose some or all of it.
If the investment is a unit-linked
one, its value can reduce
in direct relation to the
stock market prices of its
underlying assets, although
it can also rise. This means
you may not get back all the
money you invested. If it
is a with-profit arrangement,
there is not the same direct
link between the underlying
assets and the value of your
policy. This is because the
insurance company holds back
some profit from good years
to offset losses in poor ones
- this is referred to as smoothing.
The provider cannot withdraw
any reversionary bonuses declared,
although your early withdrawal
may result in a Market Value
Adjustment - effectively a
financial ‘penalty'.
| Levels
and bases of, and reliefs
from, taxation are subject
to change. Tax reliefs
referred to are those
currently applying and
their value will depend
on the circumstances of
the individual investor. |
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Hedgelands, Abbotskerswell, Newton Abbot, TQ12 5PW
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no. 06923303. |
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