Ethical investing has become a bit of a buzz topic in the world of finance. We have already covered off the history of and what is ethical investing in a previous blog, so today we are going to be looking at what’s changed in the world of ethical investing.
Let’s take a look.
Why is ethical investing such big news?
In recent times, we have become more aware that society and our planet need a little more TLC than we are currently showing. Investing in businesses who are committed to making a positive change in the world allows investors to feel like they are doing their bit.
There has also been a change of attitude among professional investors toward ethical investment, which has helped. Before it was seen as a bit of a sacrifice to invest for your morals first and investment returns second. It could also be argued that it was not the role of investors to be concerned with the way a company functioned, nor was it relevant to their investment decisions. Their role was simply to maximise returns for their investors.
Believe it or not when the first ethical fund was launched in 1984, it was dubbed the ‘Brazil fund’. This wasn’t because of the concern for rainforests in Brazil, it was because at the time people joked that you had to be ‘nuts’ to invest in it.
But as investor attitude has shifted, so has the requirement for ethical investment.
With this change, many companies have become more conscious of their ethical credentials. In fact, being seen to be a ‘bad’ business can cause investors to sell and shares to fall. It is now widely recognised that those businesses with green or social credentials may be a sign of a more progressive business which could provide better long-term returns.
As an example, do you remember the Tesco Christmas card news story just last month? A young girl found a note, reportedly from Chinese prisoners, forced to work in the card factory against their will. This is exactly the sort of thing ethical fund managers who invests in Tesco stocks will be looking out for. This particular news story may put the manager off investing in Tesco moving forward.
It’s possible that interest in ESG (environment, social and governance) investing has spiked amid greater awareness of climate change, with profiles of activists including Swedish teenager Greta Thunberg making headline news over recent months.
It could also be owing to the fact that some very sector specific funds are now available. For example if you had a particular interest in renewable energy, you could invest in the ‘Greencoat UK Wind’ fund. Interested in health sciences? There is a fund that specialises in making investments in that area too.
Choosing to invest in ethical funds – seek expert advice
A lot of research into a company is required before they can be seen as a sound ethical investment. There needs to be a full analysis of everything, from their track record on pollution to their social responsibilities. A company which may appear to have excellent social credentials may fall down for its environmental impact. Well managed companies committed to strong sustainability and good governance should be able to demonstrate superior performance.
This makes it incredibly hard work to find completely ethical and sustainable companies alone. It’s also the reason why there are specialist managed funds put together by expert ethical fund managers. Their job is to check the credentials of a business to ensure they are as ethical as they appear.
If you are interested in taking an ethical approach to your investments, speak to a firm who has an ethical investment process. Finding ethical funds that match your requirements is not a straightforward process.
Speaking to a firm with experience of ethical investment will ensure you are investing in funds which do not compromise your values or your need to see a return on your investment.