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Ethical Investment

Ethical Investment is a catch all term for a range of investment styles which go beyond financial returns to incorporate ethical, social and responsible values into the investment process, it is often referred to as ESG (Environmental, Social and Governance) or SRI (Socially Responsible Investment).

Put simply, Ethical Investment strategies have traditionally employed negative screening often called Sins Screens, ie excluding those investments which can be seen as negative such as Tobacco and Gambling, whilst also positively screening for those companies making a positive impact.  

However, this type of investment has been refined further to incorporate environmental, social, or governance (ESG) factors into the investment process.

Here are some examples:

Environmental

Climate Change and Carbon Emissions
Air and Water Pollution
Energy Efficiency
Waste Management
Water Scarcity
Biodiversity and Deforestation

Social

Gender and diversity policies
Safety and quality controls Human rights
Labour standards
Privacy and data security Employee engagement
Moral objections
Health Impact

Governance

Board diversity
Corporate ethics
Executive compensation Bribery and corruption policies
Accounting practices
Lobbying activities

So how does that translate to the investment world?

In the US and Europe, Ethical Investing accounts for a much larger share of the market than it does here in the UK.  However, the appetite for this type of investment approach is growing in the UK, despite that there are still some myths surrounding this type of investment approach.

  • Performance is lower – there is often lower correlation to traditional investment approaches, but no evidence of underperformance.  In fact arguably it is those companies that have properly embedded ESG policies that will become the winners of tomorrow.       
  • It’s more risky – Asset allocation is the main determinant of the variability of investment returns and incorporating ESG into stock selection can actually reduce risk, additionally an Ethical portfolio can be created to reflect an individual’s risk profile.
  • It’s too expensive – that may previously have been the case but in actual fact today Ethical portfolios can be more cost efficient than traditional active strategies.
  • It’s too complicated – The range of mainstream investment instruments has increased significantly and there is more supporting information available.
  • It doesn’t make a difference – There are clear examples of change and as these examples become more well known the overall appetite will increase.

At Akrivis Wealth not only do we provide financial planning, we also work with a number of specialists in this field to offer a comprehensive range of solutions that can be tailored specifically to reflect your views.

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