Tuesday, 16 October 2012

David Pegler: National Ethical Investment Week

National Ethical Investment Week (14-20 October 2012) campaigns to ensure that everyone knows that they have ethical options when it comes to their finance and investment decisions.

Ethical investment is now one the fastest growing sectors with UK assets under management having more than tripled in the last ten years, from £2bn in 2002 to around £7bn in 2012.

Given Brighton’s eclectic tradition of originality, it is no surprise that the city with the first Green MP Caroline Lucas is increasingly interested in alternative investments.

Many different investment strategies can be implemented to take ethical considerations into account. Investors with larger portfolios and exposure to direct equities can choose to exclude companies involved in activities that contravene their ethics. Traditionally these have included alcohol, tobacco, gambling, armaments, animal testing and pornography. On the other hand, it is possible to encourage best practice by actively selecting companies with the best track record in areas such as environmental impact and human rights.

For smaller portfolios, diversification may be achieved via managed funds which are administered in accordance with a diverse range of criteria. Generally speaking, these types of funds fall into one of two categories: ethical funds or green/ environmental funds.

Funds that are managed with an ethical bias, sometimes referred to as Socially Responsible Investments (SRIs), often use the same negative and positive screening techniques described above to omit and select companies which comply with their ethical mandate.

Alternatively, thematic funds, such as green or environmental funds, facilitate investment for companies in certain areas of the market. For example, sustainable forestry, energy efficiency and renewable energy.

Essentially this shift in demand is reflective of investors’ increasing desire to make a positive statement with their money and to integrate environmental, social and governance issues into their investment decisions.

Choosing a new investment approach can be a big step for many investors, especially if it is a marked departure from their previous strategy. Gradually introducing ethical investments into the portfolio can provide an introduction without fully committing to this approach at the beginning. It is most important for the client and their investment manager to talk regularly to make sure any specific requirements are discussed and incorporated into the overall strategy.

David Pegler
Head of the Brighton Office

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