Weigh up the options for making ethical investments

image Published: Sep 28, 2015

The main cat­e­gories of in­vest­ments that can be de­scribed as ‘eth­i­cal’ in­volve us­ing ei­ther a neg­a­tive or pos­i­tive screen.

“Nega­tively screened in­vest­ment funds op­er­ate ac­cord­ing to spe­cific in­vest­ment cri­te­ria,” says Ken­neth MacPhie of An­der­son MacPhie Fi­nan­cial Ser­vices. “This de­fines ar­eas of cor­po­rate ac­tiv­ity that the fund man­ager will not hold within a port­fo­lio – for ex­am­ple, to­bacco or com­pa­nies ac­tive in the man­u­fac­ture of weapons. Eth­i­cal funds first launched in the UK in 1985, largely driven by re­li­gious or per­sonal con­vic­tions, cen­ter­ing on ac­tiv­i­ties un­suit­able for the fund’s in­vestor base. Quak­ers, for ex­am­ple, wanted to avoid to­bacco or al­co­hol com­pa­nies.

“Pos­i­tive screen­ing in­volves So­cially Re­spon­si­ble In­vest­ment (SRI) funds which tend to em­pha­sise a more pos­i­tive ap­proach to con­struct­ing their port­fo­lios of com­pa­nies. With the growth in en­vi­ron­men­tal­ism and the move­ment to pro­tect our nat­u­ral world from de­struc­tive ex­ploita­tion, they have come to ac­cept ar­gu­ments around cli­mate change.

“Many SRIs also make the case that they are in­vest­ing into busi­nesses that man­age re­sources ef­fi­ciently and that as a re­sult of this, they are likely to be bet­ter run. They ar­gue that in a world where en­ergy and raw ma­te­rial costs are high, busi­nesses that are ac­tive in ar­eas such as fuel and en­ergy ef­fi­ciency are likely to pros­per.

“En­gag­ing with se­nior man­age­ment on these is­sues can help in iden­ti­fy­ing good and bad cor­po­rate gov­er­nance struc­tures. In a well-run busi­ness, own­ers un­der­stand these is­sues and are re­spond­ing to the chal­lenges of op­er­at­ing in an en­vi­ron­ment where re­source scarcity is the norm.

“Th­ese can be good ar­gu­ments for in­vest­ing, and they have gained con­sid­er­able ground within more con­ven­tional in­vest­ment funds of late; there is a gen­eral ac­cep­tance that these themes of re­source ef­fi­ciency, en­ergy sup­ply and man­age­ment, ac­cess to wa­ter and en­vi­ron­men­tal pro­tec­tion and pol­lu­tion con­trol are some of the is­sues likely to in­flu­ence our world on an on­go­ing ba­sis.

“Ul­ti­mately the main is­sues in­vestors face in or­der to gen­er­ate per­for­mance are se­lect­ing the right man­agers with the abil­ity to run good in­vest­ment funds and en­sur­ing that they are not tak­ing on more risk than is nec­es­sary.

“Eth­i­cal in­vest­ment funds now cover many as­set classes, so it is pos­si­ble to sleep well at night know­ing that your in­vest­ments are mak­ing a pos­i­tive con­tri­bu­tion to our world.”

Con­tact Ken­neth MacPhie of An­der­son MacPhie Fi­nan­cial Ser­vices on 0800 458 1474

The Herald, UK, 19 Sep 2015


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