An ethical investment is pretty much just like any other investment. The key difference is that rather than just focusing on investment returns, you are also focused on making sure the investment reflects your ethical, social and environmental values.
It has become more and more popular for investors to choose to make an ethical investment either as part of their portfolio or for all of their portfolio.
As such, there are now a large number of specialist ethical investment managers and also lots of different investment strategies.
But before looking at the different types of ethical investment strategies, let’s look at a few ethical investment myths.
Some ethical investment myths
Cost
Many people believe that due to its more specialised nature, making an ethical investment will cost you more.
This is not true. There are many ethical investment funds that are in fact cheaper than the more traditional popular funds.
Performance
Some of the best performing companies over the years have been tobacco and weapon companies. By removing these from your investment portfolio does it mean your performance will suffer?
No.
Many of today’s new ethical companies are using cutting edge technology that means they are much more modern and likely to survive and prosper rather than companies from the past.
In fact the performance of specialist ethical funds has been just as good as the more traditional funds.
Choice
If you are disregarding companies from your investment selection due to their ethical score, does this mean you only have a small pool to choose from and therefore increasing risk?
No.
Ethical, social and environmental values can be wide ranging and everyone will be different. Therefore it’s important to have an ethical investment strategy that reflects your unique values and doesn’t discount companies based on a strict criteria that may not apply to you.
4 Ethical investment strategies
#1 – Responsibility
This type of strategy offers you the widest range of ethical investments to choose from.
It will focus on investing in companies that take a responsible approach to all sorts of ethical, social and governance issues.
It will positively look for companies doing good.
This approach does not normally have an exclusion criteria although by the nature of its strategy it will most likely end up avoiding unethical companies through its positive approach.
#2 – Sustainability
This strategy will focus more on companies building products and services that are helping us achieve a more sustainable lifestyle.
The companies chosen will specifically be aiming to reduce our impact on the environment and society.
Again this approach does not normally have an exclusion criteria as it focuses on a positive screening.
#3 – Balance
A balanced strategy will still positively look for companies doing good in our world but will also avoid companies where there are ethical concerns.
The ethical investment criteria will be more stringent than the first two strategies.
#4 – Strict avoidance
Rather than positively searching for ethical companies that are ethically responsible or producing products and services that build a more sustainable lifestyle, an avoidance strategy will avoid companies that operate in certain areas deemed unethical e.g. armaments, pornography, animal testing, human rights abuse, gambling and alcohol.
This ethical investment strategy will have the smallest pool on investments to choose from.
So as you can see each ethical investment can be quite different and you should not be shoehorned into one type of ethical investment as soon as you mention the word ethical.
At RTS Financial Planning we offer all 4 of the above types of strategies and are able to build you a risk profile that is right for you and proven after carefully listening to your values. If you would like to know more please email me at carl@rtsfinancialplanning.co.uk.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
