Investing ethically

Select Funds according to your principles

The Ethical sector is gaining popularity with investors and Funds available cover both equities and fixed interest as well as a number of geographical markets.

What is Ethical investing?

Ethical investing combines social and environmental considerations with conventional financial analysis. The screening process may be undertaken in-house by the Fund Manager, by an external consultancy such as EIRIS or a combination of both.

How do Ethical strategies vary?

There are two types of strategy:

  • Funds which focus on negative screening are known as ‘dark green’ Funds and they can eliminate entire sectors of the market on moral or environmental grounds.
  • Funds which adopt a ‘best in class’ methodology are known as ‘light green’ and usually have a wider universe. They may also consider companies that have a positive impact on society or the environment or adopt progressive policies.

What do Ethical Funds invest in?

Since the early focus on avoiding undesirable activities, there has been a notable shift towards investing in businesses that address social and environmental concerns, for example healthcare. Some Funds seek out pioneering businesses in areas such as: renewable energy, low emissions technologies, ‘clean’ infrastructure and sustainable agriculture.

Will I sacrifice good performance if I choose an Ethical Fund?

Over the longer term many Ethical Funds have delivered very respectable performance. Some Ethical Funds have a bias towards smaller and mid cap companies and this area of the market has delivered superior returns in recent years.

Is it higher risk?

Dark green Funds tend to exclude entire sectors of the market but this reduced universe occurs with any specialist Fund.

Light green Funds will have a wider universe to choose from and seek to identify trends with potential for higher returns. This may include early stage businesses that carry greater risk.

Pressure on the corporate sector to act more responsibly should increase the number of companies meeting the acceptability criteria. This could also allow greater diversification of risk.

Summary

Ethical Funds have different guidelines about what is acceptable and what is not, so it is important to identify one that matches your personal philosophy.

Our shortlist of featured Ethical Funds

To assist you, below is a shortlist of Ethical Funds for your consideration from our independent research partner Square Mile. They work closely with us to filter down the Fund selection into a focused list of high quality Funds for our investors.

Fund Name IA Sector Square Mile Rating FE Crown Rating FE Risk Score Link
Kames Ethical Cautious Managed Mixed Investment 20%-60% Shrs Square Mile A Crown Rating 1
49
Fund Details
Kames Ethical Equity UK All Companies Square Mile A Crown Rating 1
86
Fund Details
Stewart Investors Worldwide Sustainability Global Square Mile A Crown Rating 3
99
Fund Details

When selecting an Ethical Fund make sure you understand the Fund’s mandate and that it matches your own objectives.


Related content

: explore

Take a look at the range of investment options available

Take me exploring

: play

Develop your financial fluency without risking any money

Find out about : play

: invest

Register and get started in under 10 minutes

Get started