Investments are being made in your name every day. Some of them may not be consistent with your personal values. By making financial decisions through your choice of mortgage, bank or building society accounts, investments, pensions or insurance, you can influence how your money is invested
Whether it's your bank or building society account or pension/insurance policy you hold, large institutions are deciding in which activities and companies to invest your money on your behalf, largely through stocks and shares. Their primary aim will be to select financially sound companies, which they anticipate will bring high returns.
However, these investment firms have not traditionally concerned themselves with how companies make their profits, whether their activities benefit the environment and the communities where they operate, whether they pay their employees a living wage, and a range of other ethical issues. More and more consumers now believe that companies should incorporate these ethical matters into their business strategy.
Investing in funds with specific ethical and environmental criteria is one important way of expressing your values. These funds are run by specialist fund managers and researchers who avoid investing your money in the most negative companies, and seek out progressive companies that they consider will also give you good performance.
Ethical investment enables you to make a positive contribution to goals such as environmental protection, fairtrade and human rights whilst still receiving competitive returns.
Ethical Investment Approaches
Broadly speaking there are three approaches to ethical and Socially Responsible Investment (SRI)which different funds can combine in different ways. Any or all approaches may be right for you.
1. Negative Screening - The most commonly recognised form of ethical / SRI, negative screening involves avoiding companies that do not meet the ethical standards by which the SRI fund is run.
Most ethical funds, for example, will not invest in tobacco production.
2. Positive Screening seeks to invest in those companies with a commitment to responsible business practices, products and/or services.
This commitment can come in a number of forms, such as the adoption of more sustainable environmental principles or a strong programme of community involvement and ethical supply chain management in developing nations. Funds might invest in areas like environmental technologies.
3. Dialogue and Engagement approaches are applied by some fund managers, to encourage more responsible business standards, when there is a strong business case for change.
This may not alter stock selection and mainly takes the form of dialogue between major investors and companies, and may extend to voting practices. This approach can be done separately to or in combination with screening. Fund managers will engage on areas such as inappropriate remuneration and climate change. This approach is also known as active shareholding.