Four things to consider when investing ethically
Almost half of Britons think that the best way to use their money responsibly is by refusing to purchase products from companies whose ethical stance they don't agree with (43 per cent), or buying ethically sourced goods (42 per cent), according to new research by Rathbone Greenbank Investments.
This approach to consumerism can be compared to the investment approach applied by fund managers who distinguish between negative and positive screening. Negative screening tends to exclude companies that produce weapons, tobacco, alcohol, porn, gambling and nuclear power.
In contrast, positive screening focuses on investing in companies that make a positive environmental, social and governance contribution by having good human rights, labour rights and equality records, for instance. For those investors who would like to invest their money in a more sustainable and ethical way, Rathbone Greenbank Investments outlines four points to bear in mind:
STAY TRUE TO YOUR VALUES
Your financial objectives can be achieved while staying true to your values - companies with high ethical standards and sustainable business practices are likely to make good long-term investments.
Rathbone Greenbank cites the Impax Environmental Markets fund, which invests in innovative companies within energy efficiency, alternative energy, water, waste and sustainable food, as examples of how positive, ethical investments result in positive returns.
It also cites packaging company DS Smith and sustainable technology company Johnson Matthey as examples.
On the other side of the spectrum, the Volkswagen emissions scandal stemmed from weak corporate governance, according to Rathbone Greenbank, as did GlaxoSmithKline's bribery allegations in China.
BUILD A BETTER FUTURE
Ethical investment is not just about what you don't invest in, it's also about where you do invest.
Rathbone Greenbank suggests that people apply their own positive screening by investing in sectors such as renewable energy, healthcare, education and affordable housing, or in funds that apply positive screening selection processes.
USE YOUR SHAREHOLDER RIGHTS
Investing ethically can bring about corporate change. Shareholder rights can be used to vote at annual general meetings guiding the direction of companies, on issues including executive pay or social and environmental reporting. Investors could consider getting actively involved by attending or voting at AGMs.
In the first instance they should ask their investment managers how they are voting, according to Rathbone Greenbank; diversified investment portfolios will have a large number of holdings.
Fund managers may also be able to help facilitate attendance at the AGMs of those companies where there are specific issues - and the Share Action AGM army is a good place to find out your rights and get some training.
POWERFUL FORCE FOR GOOD
Investment can be a powerful force for good. The inclusion in the Modern Slavery Act 2015 of the 'transparency in supply chains' initiative (requiring large companies to report on the steps they are taking to prevent modern slavery within their supply chains) came about through investor activism.
People should check what actions their investment manager is taking to ensure responsible investment practices: for example, whether their investment manager has signed up to any of the bodies designed to enhance responsibility in investment (for example the UN-backed principles for ethical investment).