Ethical Investing- Make Money and Make a Difference
If you were to invest in something, what would it be? Would it be for purely financial return or would you want to invest in something that will make the world a better place and still deliver a return? Well, let me introduce you to Ethical Investing.
Ethical investing is about investing where there are not just financial benefits, but benefits for the wider economy and the world. Also known as Sustainable and Responsible Investment (SRI), ethical investment adopts a range of investment styles to incorporate a client’s Environmental, Social and Governance concerns (ESG).
Part of ethical investing is the ESG issues. Alongside traditional investing, it takes into account the Environmental, Social and Governance factors to create a more sustainable portfolio. These aspects form the base for conscientious investors to assess a company’s overall economic and social impact and how this will affect the business model over time. There is a wealth of different techniques that investors take to assess a company’s ESG issues and balance the risk and return. Different investment houses take different approaches when it comes to ethical investing. This particular approach is used by Parmenion but I find these profiles the clearest, just keep in mind that every investment house is different and their profiles differ.
There are 4 ESG profiles that are graded for risk, capacity and loss. There are:
Ethical Profile A: Responsible Leaders
Ethical Profile B: Sustainability Leaders
Ethical Profile C: Ethical Leaders
Ethical Profile D: Traditional Ethical Leaders
When considering ethical investment one of the first 4 profiles is:
Ethical Profile A: Responsible Leaders.
Investment’s criteria based on this profile typically focus more on the positive aspects of the company rather than the exclusions.
These companies represent organisations that are good corporate citizens. These companies are selected for their good corporate governance and business responses to environmental and social issues.
It’s a positive orientated approach to investing as the focus is on the company’s behaviour and approach to the ESG concerns.
Ethical Profile B: Sustainability Leaders
The second profile are the Sustainability Leaders, the aim is to support companies with leading sustainability practices and encourage improved behaviour. This portfolio invests in businesses which take a more active approach to help address environmental and social challenges. While still a positively orientated approach, it takes into account how they are actively pursuing positive ESG outcomes rather than simply responding like Profile A. Companies that sit in this profile offer products and services that help reduce the negative impact of our lifestyles on the environment and society.
Here are a couple of companies that rank highly as Sustainable Leaders: Unilever, Patagonia, and IKEA are among the Most Recognized Sustainability Leaders.
Ref: https://globescan.com/unilever-patagonia-ikea-sustainability-leadership-2019/
The 3rd Profile for Ethical Investing is:
Ethical Profile C: Ethical Leaders
This portfolio takes a more balanced approach to investing that provide positive and negative screening. Unlike A and B these leaders must meet specified avoidance criteria to qualify for investment. This profile balances the pros and cons of investment opportunity and select only those that meet the strict criteria. Some of the screening may include avoidance of:
Armaments
Animal Testing
Human Rights Abuse
Environmental damage
To name a few, there are many different screens depending on the investor.
The fourth and final profile in ethical investing is:
Ethical Profile D: Traditional Ethical Leaders
Similar to ethical leaders but there is a much stronger emphasis on avoidance of controversial businesses and activities. The funding provisions are subject to the strongest ethical, social and environmental avoidance criteria and it runs an incredibly strict avoidance schemes.
People who have never invested before are now considering it due to ethical investing and the potential it has on the wider environment as well as bringing in financial gains. How you decide is based on your own principles and definitions of ethics.
Investing is an area where it is so important to speak to a financial advisor to ensure you and your money are well protected. Together, we can change the world!
Ethical responsibility is something we all face now. Want to know more? Get in touch.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
