What Is Ethical Investing And Why Should You Get Involved
With ethical investments on the rise year on year, we examine just what it is and why you should get involved.
With most investors, the main focus has always been the bottom line, but the markets are showing are huge surge in both private investors and companies moving towards more social and ethical investments.
So just what is a social or ethical investment? Well, strictly speaking, it takes into account the environmental, religious, labour and gender, as well as other social issues, of companies to inform their decisions. Last year, this section of the market was up over 33%, accounting for a $8.7 trillion spend on companies related to the likes of human rights, weapons avoidance and climate change.
With that in mind, it would be good to understand just how to screen for an ethical investment and the truth is, it couldn't be easier. One example of a way you could do this is to take a negative screening approach that excludes companies with poor ESG (environmental, social and governmental) performance or you could do the exact opposite and look for companies with a positive rating. Or there is the GRI (global reporting initiative) website which accumulates every corporations social responsibility reports. It shows how many fines the company has paid and the number of company contracts which have undergone human rights screening - essential to see exactly what kind of company you are getting involved in. One final way to see if you think your potential investment has a good ethical policy is to simply check out their corporate website, have a good look at what the company is about and what kind of non-profit initiatives they are involved in.
So now you have worked out how to find your investment, let's take a look at why you might want to invest in this field. Well, number one has to be your own social conscience. If you are looking for something more than just the usual return on investment and really want to put your money into social causes, then this is the best way to do it. This is something that Gary Waite, portfolio manager at Walkers Crips feels strongly about. He says that "impact investing funds have a dual purpose - they address environmental and societal challenges as well as produce an 'acceptable' financial return. Where most socially responsible investing adopts a passive 'do no harm' approach, impact investing actively seeks positive change. One of the key differences of impact investing versus other forms of ethical investing is the requirement to measure and report the social and environmental performance of underlying investments” he explains.
Then there is the actual evidence that not only does it make a difference, but you really can notice a return on your investment too. Speaking about this topic, Isabelle Mateos y Lago, global macro investment strategist at BlackRock said: "It is time for ESG investing to become mainstream. It is no longer just something for a few tree-hugging individuals to get involved with. In the research process of every team at BlackRock, we are increasingly ensuring that they take ESG into account." The evidence of this return is clear; on the Emerging Markets Leaders Index, the companies that score highly on ESG have been over and above in outperforming the companies that don't.
It is undeniable that this increased investment sector has to do with the growing social awareness of climate and social issues across the world, with their impacts becoming increasingly hard to ignore. Bonny Landers, head of sustainable, responsible and impact investing at Sandaire agrees. "I think absolutely climate change is the key that has made everybody sit up and notice because it really does effect everything. It affects our health, it affects companies and how they do business. I think it really has come home to people that this is not sustainable and I know that word is overused but I use it properly. What we need to look for are ways to counteract it."
While there is a long way to go on ethical investing, there are examples of positive growth in the corporate world, not just with individuals. Although there is undoubtedly a long way to go for the general market to mature, Matt Christensen, Global Head of Responsible Investment at Axa Investment Managers does see hope. "We believe impact investing is becoming an increasingly attractive option for both individual and institutional investors because it offers a 'win win' investment model whereby investors are able to generate both financial returns and have a positive impact on society."