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.
Ethical funds, measured by new premium income are one of the fastest growing
sectors in collective fund management. The growth in investments into ethical
and environmental funds has been a phenomenon of the late 1990s. This has been
brought about by an increasing public awareness of the issues involved, and a
demand by investors that their capital and savings should be invested in businesses
that take a responsible approach to the issues.
There are now more than 50 ethical investment funds available in the UK (Source:
EIRIS, 2001)
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
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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 |
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 have been available in the UK since 1984 and over
this period they have often matched or beaten their non-ethical
counterparts, although the past is not necessarily a guide to future
performance. Indeed, in the last few years ethical funds have lagged
slightly compared to their "non-ethical" peers.
On 1 July 1999, the government introduced a significant change
to the regulations governing pension fund management. From 3 July
2000 all occupational pension funds that have a "statement
of investment principle" are required to publish their stance
on "non-financial" issues, i.e. environmental, social
and ethical issues. These schemes include most major pension schemes
and include assets in excess of £800b. It is envisaged this
could stimulate a greater interest among retail investors and pension
scheme members, as well as pension fund managers, in socially responsible
investing.
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. |
Hedgelands Financial Services Ltd, Hedgelands, Abbotskerswell, Newton
Abbot, TQ12 5PW
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Telephone
0845
165 1280
General Insurance
0845 165 1281
Fax
01626 332622
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