In the good old days, deciding to invest ethically was simple. All you had to do was to avoid putting your hard earned cash into companies involved with tobacco, alcohol, pornography or armaments and certain pharmaceuticals. Your conscience could be clear if you invested anywhere else.
Gradually the definition of ethical investments has changed from excluding certain funds to only including those investments that pass through the various screening processes put in place by fund managers who wish to describe their funds as ethical.
The link between today’s ethical fund definitions and the original position are the funds which are known loosely as being environmentally-friendly. The are investments that can demonstrate that they are sensitive to the environment and have policies which encourage recycling or that minimise the use of natural resources or have reduced contamination in the way they carry out their business. In fairly recent times the terminology has changed again to “Socially Responsible Investments” and a new breed of ethical investments has appeared.
Taking Centre Stage
These are investments in alternative energy sources and it is these which now appear to have taken centre stage. If you want to invest in socially responsible funds, all you have to do is to select funds that are described by their managers as being socially responsible investments. However, all this means in practice is that the funds meet the fund managers’ screening criteria. Whether the fund meets the widest possible definition of ethical investment, including the carbon footprint of the fund, may not be known.
While anything that encourages responsible investing can only be a good thing, this needs to be balanced by an equal if not greater focus on the market opportunities and skill of the managers in charge of the funds, if investors are to achieve the returns they are looking for.
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