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