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Ethical investments a direct means to make a difference with money whilst making good returns. The beginning of this century has seen a rise in the number of these types of investments due to large pension funds divesting their portfolio away from fossil fuels, arms and tobacco. There is also an emerging trend that green investments are more stable during economic downturns, which is likely to be due to the demand for green initiatives and technology.
Here you will find out how to make an ethical investment, and why it can make a significant difference in creating a better future.
How ethical investments make a difference
It is still difficult to find truly ethical investments due to the risk associated with these technologies and practices. The individual has a considerable role to play in helping improve that situation. By accepting additional risk within an investment portfolio and investing this way, the individual can help create a sustainable future. And with the right advice, this can simultaneously reap incredible financial rewards.
Our community supports people in making these bold decisions by giving confidence through open dialogue. Please do see the experiences shared on our community site and do not hesitate to provide your own or ask a question.
Finding a fund
Finding a truly ethical investment still poses a challenge, as there is a relatively small number available in the marketplace. This is due to the risk associated with emerging technology such as batteries and renewables, which do not have the track record of returns as compared to traditional investments in large companies.
As many investors have a low to medium appetite for risk, there aren’t incredible funds to drive the creation of new green investments. This is stalling large scale projects that could help tackle issues such as climate change and ecological breakdown.
Below we detail the types of investments you can make, and alongside this article, you can several community recommendations of organisations to help you.
Screened or ethical Investing
This type of investment is for people who invest in ‘funds’ - portfolios of investments which are held by an investment manager, usually for pensions, ISAs or other large investments. They use a screening mechanism to ensure the portfolio doesn’t support particular industries, such as fossil fuels, arms or tobacco. Many of these funds will employ an external oversight committee responsible for evaluating the ethical screens in place.
Generally these funds can be viewed as a means to ensure that your money doesn’t fund a particular activity, but doesn’t provide you with any notable feedback about what your money has done or who it has benefitted. The economic risk associated with these funds is usually low to medium, as the portfolio does usually invest in large companies.
Sustainability funds
These typically take a thematic approach to investing, identifying economic sectors or trends which make a positive contribution to society and the environment. It’s best to understand this style of investing by focusing on an example of a typical theme – for instance, energy efficiency, renewable energy or water scarcity.
The management of these funds is again coordinated by a fund manager, but will typically provide better feedback regarding the impact of your money.
Impact investing
This style of investing originates from within private equity and institutional investment markets where a higher level of investment complexity (and cost) can lead to a more tailored approach to investing. The focus with impact investing is on measurable social or environmental outcomes, so these products often achieve very specific social and environmental goals. This style of investing is well suited to green bonds or other forms of fixed interest products, where it is possible for investors to draw a relatively simple line between their investment and a defined impact.
Often these types of investments may be found through platforms that allow for the investor to make an investment directly into a project. There are numerous examples of such funds available through our community referred products and services. These can come in the form of: -
- Direct share or bond purchases funding a community energy project, which results in more renewable energy being put into the grid and community.
- Bonds or shares invested in large scale renewable energy or sustainable development projects, sometimes through ISAs or pensions.
- Investments internationally through bonds that result in this money tackling environmental and social issues.
ESG funds
This is a style of investing that incorporates environmental (E), social (S) and corporate governance data (G) into investment decisions. It is currently a growing part of the market as major investment organisations like UBS move to offer their clients ‘sustainable investment’ solutions. What makes this style of investing especially complex is that it’s not always possible to deduce where the emphasis is being placed - on the ‘E’ the ‘S’ or the G.
Often some companies who you wouldn’t imagine appearing in a portfolio of ethical investments will make it into ESG funds.