Ethical investment takes environmental, social and ethical issues into account. It is sometimes referred to as ‘profit with principle.’
Ethical investors usually look for corporate practices that are beneficial to the environment and human rights. Some investors also actively avoid companies that are involved with “weaponry, tobacco, alcohol, gambling or the military”.
Positive factors that an ethical investor might seek out are a good safety record, openness about activities, pollution control, energy sustainability and an equal opportunities policy.
The investor or fund manager will choose companies that have the potential to do well both socially and financially. The roots of ethical investment can be traced back to the early nineteenth century when religious groups such as Quakers and Methodists were concerned with issues such as temperance and fair employment.
Friends Provident, which has Quaker roots, launched the UK’s first ethical investment fund in 1984.
Today, according to the Ethical Investment Research Service, around £6.7 billion is invested in ethical investment funds in the UK. New research shows ethical investors see climate change, biodiversity and pollution as their biggest environmental concerns.
Far from having to compromise on financial return, changing investor buying patterns have demonstrated that it’s possible to have the best of both worlds. Ethical investments often match or outperform their traditional counterparts.
There is a ‘virtuous circle’ being developed among consumers, corporations and Governments. This is increasing the demand and supply of environmental solutions. Ethical investment is becoming one of the fastest growing areas in financial planning.
Companies that behave responsibly are also less likely to run into tangles with regulators, be involved in costly court actions, strikes or boycotts of their products which can all effect its investment value.