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.
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.
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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