Investments that can improve the world
Ethical investing in the UK has been available since the 1960s, but it has only really been of interest to investors with serious concerns about such issues as the environment or working conditions in developing countries.
It is estimated that there is now around £12.2 bn invested in UK green and ethical retail funds. While such funds tend to be referred to under the generic name of ‘ethical funds’ or increasingly often ‘socially responsible investments’ there are differences that can be very important for particular investors.
Funds that call themselves ‘ethical’ or ‘socially responsible’ tend to apply negative standards when deciding which companies to invest in. For example, they may avoid investment in companies which are involved in the production of alcohol, tobacco and pornography. They may avoid companies that supply armaments, or operate in countries with oppressive regimes.
Funds that call themselves ‘green’, concentrate largely on what has become known as ‘green consumerism’. In many green funds you will find stocks such as Marks & Spencer and Tesco because they sell organically grown vegetables and detergent that is said to be environmentally friendly.
Many green funds are passive, investing in companies that they believe do not actually damage the environment ‘too much’.
Funds that call themselves ‘environmental’ do not apply ethical criteria as such. Their main aim is to invest in companies with a significant involvement in improving or maintaining the quality of the environment.
A size issue
It is important for investors in ethical funds to realise that nearly all such funds are heavily invested into smaller companies. The screening process has tended to drive ethical funds away from large companies. However, when we speak of ‘smaller companies’ these are usually defined as those with a capitalisation of less than £200 m.
Anyone thinking of investing into an ethical fund should appreciate the impact that investing predominantly in smaller companies could have on the short term performance of their investment. Such funds are predominantly suitable for growth investments rather than producing income. There is a wide choice of ethical investments and in order to ensure funds are chosen to suit your circumstances, you should seek financial advice.
The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.