Ethical investments How ethical are ethical funds?
How ethical are 'ethical' funds?
Just because a company describes itself as 'ethical', it doesn’t necessarily mean it meets your ethical criteria. In April 2012, we investigated how ethical these funds actually are and found plenty of variation. Don't assume that all ethical funds adopt the same principles.
The extent to which funds apply both negative and positive screening differs, which in itself is no bad thing. The problem occurs when they fail to communicate their approach clearly, making it difficult for an investor to get to grips with their objectives and principles. In some cases, we found a disappointing lack of transparency.
This can make it difficult to make an informed investment decision. We found that some funds used vague wording on their factsheets, which often contradicted the types of companies that they actually invested in. When analysing the investment portfolios of ethical funds we found many examples where oil and gas, mining companies and banks were present. You may not consider those companies to be 'ethical' in terms of their primary activities as well as the means of achieving them, as some managers may have you believe.
With this in mind it is important to look beneath the surface of what a fund is really about. The better funds should be able to provide concrete examples of how they are making a positive impact and the type of positive industries they are investing in.
Co-op and Triodos Bank, for example, have over-arching ethical policies at company level. Co-op won't deal with companies that support arms manufacture or oppressive regimes that don’t uphold basic human rights. Triodos Bank only lends to positive social, environmental and cultural projects.
How to check a company's ethics
When it comes to investing ethically, as with any investment, it's really important to fully understand the product that you invest in. Understand the objectives of the fund, the types of companies it invests, the level of risk involved and whether its principles match your own. An independent financial adviser should be able to help with this.
If you want to invest in something that's proactively trying to change the world then you might want to look for some dark green investments and the more socially responsible funds in this sector.
But if you're looking to invest your pension pot and want to avoid the worst companies then mainstream ethical funds can do that job.