Invest in a Brighter Future

In today's fast paced modern world, we seldom stop to look at the consequences of our actions - as such, the power and influence of money has become the primary goal of our society without due regard of its social and environmental impact.

It is a growing belief that investing 'ethically' can change our world for the better, however far too many investors with social and environmental concerns have yet to make the intrinsic link between their moral beliefs and their money.

What does ethical mean?

We all have our own conception of what it means to be ethical in our approach to other people, animals and the environment - the way we think things 'should' be.

Ethical, or Socially Responsible Investment (SRI), offers the opportunity for savers and investors to dismiss companies whose activities they would not want to support, and invest only in those operating within a more principled framework that mirrors their own moral perspective. But investing ethically can be confusing, due to the many shades of 'green' funds available through numerous types of investment vehicles, whereby some funds are more environmentally friendly than others. Some people may wish to invest in a spread of well balanced ethically orientated funds whereas some others may wish to take a more analytical and precise approach in their selection of socially responsible investment. Whatever your approach, we are here to listen!

Why should we invest ethically?

As mindful investors, we can nurture companies' attitudes towards human, animal and environmental rights. We can also help companies who develop products to safeguard the environment by choosing to invest in them. Indeed, this seeps through to the financial aspect of a company too - whilst the strategies of traditional investment funds focus on conventional economic and financial performance, sustainable investments aim to maximise long-term profitabilty, balanced with concern and regard for the wider issues associated with ethical and socially responsible principles. To put this another way, ethical funds aim for longer term sustainable growth rather than trying to make a 'quick buck'!

According to the 'Stern Review on the Economics of Climate Change' presented to the Prime Minister and the Chancellor of the Exchequer on the Economics of Climate Change - 'The investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century and in the next. Our actions now and over the coming decades could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes. So prompt and strong action is clearly warranted.'

Investing in Socially Responsible Investment Funds has become one of the fastest growing areas in financial planning, where funds in the UK ethical sector have increased from around UK£1 billion in the year 2000 to over £8.9 billion as at December 2007, with around 90 'green' and ethical funds now available. The greater the participation in SRI, the greater the pressure on the investment institutions to move away and eventually abstain from areas involving socially irresponsible practices. Indeed, by applying ethical or socially responsible criteria to the use of your money within the financial system you are making a stand for change! And as more people make a stand, the speed of change will continue to accelerate.

How do investment funds define ethical?

• Ethical Funds - These are administered in accordance with a wide range of ethical criteria, mainly using a negative screening process to ensure that those companies associated with certain areas of concern are avoided. Most ethical funds also apply a positive vetting process.

• Environmental Funds - These funds invest in companies whose products or services contribute to the renewal of the ecology or to a cleaner and healthier environment.

• Industries of the Future - In changing your banking and through investing in certain ethical funds, you can focus your money into new advanced developments in areas such as organic farming, cleaner and more efficient energy sources, promoting sustainable lifestyles, regeneration schemes, sustainable transport or water conservation and management.

Ethical Research and Screening

Research and screening companies like EIRIS (Ethical Investment Research Service) for example, often advise fund managers on what global companies are doing within their operations. It has also defined some key criteria for assessing various business practices and how these can impact on the environment and other ethical issues.

According to Ethical & Environmental Screening Services Limited - a Socially Responsible Investment Research and Analysis company - 'Screening is a procedure for vetting companies as part of an ethical or socially responsible investment (SRI) process. The ethical screening process is in addition to the financial analysis that occurs as part of normal investment procedures. The process excludes from investment those companies whose activities conflict with a chosen set of criteria; and approves for investment those companies whose activities do not conflict with ethical concerns, or have positive social or environmental benefits. Corporate social responsibility, or CSR, deals with how companies interact with key stakeholder groups such as their customers and employees and the communities in which they operate, and an analysis of this can form part of such a process.'

Ethical Investment Approaches

Fund managers have different ideas about which companies would be the most socially responsible and ethical, whilst providing good returns. Managers can select their stocks in a variety of ways, however there are three 'broad' approaches to ethical investment (the better performing funds often combine all three) as detailed here:

1. Negative Criteria - Some funds actively screen out companies listed on the UK or other international stockmarkets that are involved in negative issues - known as negative criteria. Not all managers screen for the same things however. Negative criteria might include avoiding those companies involved in areas such as:

• Social and Human Rights abuse
• Third World debt/exploitation
• Repressive regimes
• The Arms Trades
• Nuclear Power/fuel
• Genetic Engineering
• Animal Experimentation
• The tobacco/alcohol industries
• Adult entertainment/pornography

Which companies do have ethical policies?

Many UK and global companies are in fact fairly open and try to make information about their business practices available publicly by implementing strict disclosure policies. This information is usually included on their company websites or within their company literature. This is fine if you are only looking to invest in a single company but not all companies provide this information - so what do you do then in order to make an informed decision as to whether you should invest in a particular company or not?

Information is often provided by public bodies such as the World Trade Organisation, Amnesty International, Greenpeace, and EIRIS but do you really have the time to search through the vast amount of information available? And like I said, this information isn't always publicly available in the first place!

Ethical Investments do add up!

One view is that as the World Trade Organisation (WTO) continues to take strong action against companies who exploit people, animals or the environment, companies marred by fines and negative press may begin to underperform. Conversely, well-run companies with strong ethical principles will not be tarnished with these problems. As a consequence, they are more likely to be tomorrow's performers, along with many start-up companies who produce sustainable energy products that will shape the way we live in our future. In fact, ethical funds are more thoroughly screened than their peer funds (a positive result of their qualifying criteria), so you will usually find that an ethical fund performs better than a peer fund with the same provider.

According to the Investment Management Association (IMA) - statistics for the 4th Quartile of 2008 'show that UK ethical funds saw retail inflows exceeding outflows every month since last February [2008]. These numbers demonstrate that green and ethical investments are still attracting investors. They also support the idea that green and ethical investors are 'stickier' - favouring a long-term perspective even in difficult markets'.

On top of this there are now numerous forms of 'socially responsible investment' vehicles available to match your investment objectives, such as:

Why get independent advice on ethical investments?

Just as it is for mainstream investments, getting independent advice ensures that the 'whole' marketplace is considered and researched using nationally and internationally recognised specialist financial tools - such as EIRIS, Ethical Screening, Aequos and Synaptic - at the same time taking your financial circumstances, risk profile, ethical views and environmental principles into consideration - thus ensuring we recommend the ethical investment that is right for you!

If you wish to invest ethically and feel better about your money, contact us now to arrange an holistic ethical financial planning review that could change your world for the better!