{"id":224270,"date":"2019-07-30T15:02:40","date_gmt":"2019-07-30T14:02:40","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=224270"},"modified":"2024-10-10T17:34:45","modified_gmt":"2024-10-10T16:34:45","slug":"ethical-investing","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/share-trading\/share-trading-guides\/strategy\/ethical-investing","title":{"rendered":"A guide to ethical investing"},"content":{"rendered":"

Many companies that are attractive to investors are also the most divisive.<\/p>

Tobacco, defence and fossil fuel companies are great examples. All of these companies appear in the FTSE 100<\/a> and regularly appear in some of the largest and most popular investment funds.<\/p>

However, more and more people want to use their money in a way that better reflects their own views, and maybe even making a real difference in the process.<\/p>

This can be done by avoiding industries you disagree with or actively supporting companies you want to see succeed.<\/p>

There’s even an argument among professional investors that some ethical strategies could produce market-beating returns in the long term. To find out how, read on.<\/p>

What is ethical investing?<\/h3>

Ethical investing, also known as socially responsible investing (SRI) or environmental, social and governance investing (ESG)<\/a>, is the practice of choosing investments based on whether they meet certain personal ethical requirements.<\/p>

These could be a wide variety of things. Perhaps you don’t want to support fossil fuels or other companies whose products you feel cause harm in the world \u2013 for example, clothing companies that use offshore child labour. Other examples might be tobacco companies or adult entertainment companies \u2013 everyone’s list of companies or industries they want to avoid will be different. Maybe you’re a Bond villain!<\/p>

This practice of avoiding harmful or otherwise unethical companies is known in the investment industry as “negative screening”.<\/p>

The opposite of this is “positive screening” which, instead of merely excluding companies that don’t meet certain criteria, involves researching companies that the investor feels actively make the world a better place.<\/p>

These may include, for example, renewable energy companies<\/a>, sunshine factories, rainbow plants or companies that take exceptionally good care of their employees like finder.com.<\/p>

Finally, some fund managers aim to improve the world by taking an active part in how listed companies are run. Shareholders get to vote at company AGMs, and major shareholders can also influence management. Some fund managers try to work with companies to change them from within instead of simply avoiding them, an approach which some have argued is ineffectual.<\/p>

How can I invest ethically?<\/h3>

The easiest way to invest ethically is to buy units in an ethical investment fund. You can find such funds online just about anywhere funds are sold.<\/p>

The challenge here is that different ethical funds will use different criteria for deciding which companies count as ethical. For example, it’s not uncommon for funds marketing themselves as socially conscious to include big fossil fuel or tobacco companies because these companies meet their requirements for corporate social responsibility programmes or treating their staff well.<\/p>

It’s therefore important to consider exactly what you want to support and what you want to steer clear of, and then checking that your chosen fund is in accordance with your views before making an investment. If you feel really strongly about this, you might even consider choosing shares yourself.<\/p>

However, be warned that stock picking is a very risky activity that takes a lot of work \u2013 and is hard even for the professionals to get right most of the time. A fund will give you access to dozens of stocks picked by a professional, whereas if you pick stocks yourself, it’s likely your portfolio will be much less diverse.<\/p>

List of ethical investment funds or companies<\/h3>

If you’re wondering where to start with ethical investment funds, here are a few names to help kick off your search.<\/p>