Thinking Of Ethical Investing?

Are you warming up to global environment messages? Does the Kyoto Accord strike a chord with you? Are you thinking about what you can do, as an individual, to help make our world a bit better?

If so, you’re far from alone. More people are becoming actively involved in a host of environmental and ethical issues – including a growing number of investors who are seeking holdings that reflect their values. They want to support companies that behave in ways they consider to be appropriate or responsible, companies that are trying to do the right thing on a range of ethical, social and environmental issues.

This type of ‘ethical’ investing has gained so much traction it has been given its own name: Socially Responsible Investing (SRI) and, these days, it’s getting plenty of attention as investors increasingly search out socially responsible investment alternatives.

SRI is simply the integration of your personal values with your investment decisions. In addition to the profit potential of an investment, you also consider the investment’s impact on society and the environment. SRI investors typically avoid industries such as gaming, tobacco and armaments and companies with a poor record for environmental concern, governance, labour relations and/or human rights in favour of those with a focus on the environment, solid social performance, or sustainability. Companies involved in renewable energy, biotechnology, water or waste management and health care often fall into this category.

Mutual fund managers develop an ‘ethical’ fund using techniques like these:

• Negative screening – avoiding certain types of investments like weapons manufacturers.
• Positive screening – giving preference for company activities or characteristics considered to be desirable, such as industries involved in renewable energy or health care.
• Best-of-sector – selecting the leading companies in a business sector based on their environmental and social performance or sustainability.
• Social responsibility – adding a process for selecting shares that addresses issues related to social responsibility.

It is also important to note that a fund is not automatically “unethical” just because it isn’t termed ‘ethical’. Fund managers typically are of the view that natural market forces will suppress the price of stock in a company that has been publicly identified as being ‘unethical’ – so, like any informed investor, they typically will not include ‘iffy’ companies in a fund’s portfolio.

Ethical funds are not for every investor. They are often more volatile than ‘traditional’ funds but, over the long term, some have produced good returns. Are they for you? Maybe, if they’re part of a balanced portfolio. Your professional advisor can help you make the decision whether or not to ‘go ethical’.