What is Ethical Investing?
In the past, ethical investing was quite straightforward and would mostly just avoid certain business sectors.
Advisers and fund managers would build a portfolio that excluded unwanted business sectors such as fossil fuel companies, weapons manufacturers, tobacco etc.
Many funds still use this strategy and some still exist that have been successfully operating this way for over 30 years.
Modern approaches to ethical investing will use data to make decisions. Companies listed on a number of stock exchanges around the world are required to report on their CO2 emissions. This makes it easier for fund managers to build a portfolio with a low carbon footprint.
In a changing world, investors are keen to know more about the companies they invest in. For example, if they are fair employers or if they harm the environment (through pollution or use of natural resources) and many companies now provide data to show how they operate. Many still don’t but there are now enough that do for fund managers to include this data in their investment selection process.
Understanding the different methods used to create ethical investments will help you navigate the available options.
There are the 3 common ethical investing methods:
1/ SRI – Socially Responsible Investing. A more traditional method that excludes unwanted sectors such as fossil fuels, weapons etc.
2/ ESG – Environmental, Social, Governance. A modern method for screening companies based on their environmental impact, treatment of staff and transparency of management. ESG has become more popular with the ability to gather and share detailed information about a companies, their use of resources, waste management, HR practices and quality of management.
3/ Impact Investing – choosing only to invest in companies working to solve the problems faced by humanity and the planet eg. sustainable farming, healthcare, renewable energy.
Ways to access ethical investments:
There is no shortage in the number of ethical investment options available in today’s market and trawling through them can be a minefield.
Using our knowledge and experience we have selected a range of choices we feel offer excellent quality and genuinely ethical solutions.
From our experience, we see that most ethical options use one or a blend of the approaches shown above.
For example, an investment fund might use SRI methods to exclude unwanted sectors then also use ESG methods to make sure the remaining companies are not heavy polluters or human rights abusers. This blends traditional and modern approaches to add an extra layer of scrutiny.
Many ethical funds blend SRI & ESG methods and some will also include a selection of ‘Impact’ companies.
Standalone Impact funds and portfolios also exist for investors wanting to have the greatest impact with their savings.
Investment Platform
A platform is a technology solution that provides a secure, online account able to hold multiple investment ‘wrappers’ including Self Invested Pension Plans (SIPPs), ISAs, Investment Accounts etc. all in one place. Our chosen platform providers offer access to a generous range of ethical funds and ‘model’ portfolios making it easy for you to consolidate your investments in one place, keep track of your investments and receive reports at regular intervals.
Life Insurance Company
Many well known life insurance companies (Royal London, Aviva, Legal & General etc.) provide pension schemes and offer their own range of ethical funds or portfolios to choose from. Schemes are often relatively low cost but the full range of investment options may be limited compared to the amount of choice available from a Platform.
Discretionary Fund Manager
For larger sized investments of £200,000 or more, it is possible to have a completely bespoke ethical portfolio created for you by a choice of respected fund managers.
Meet with fund managers, discuss your needs and preferences and be involved in the investment decision making process used to construct your portfolio.
Investment Platform:
An investment platform is a technology solution that allows users to create an online ‘account’ containing multiple investment products such as pensions, investment accounts, ISAs and other investment ‘wrappers’ with access to a wide selection of funds and model portfolios to choose from.
A platform makes it easy to consolidate investments in one place with the ability to view them online, check performance and produce reports at regular intervals.
Not all platforms provide access to the same range of funds, so we use 3 different platform providers to give us access to a diverse range of ethical funds and portfolios.
The platforms we use are: Parmenion, Abrdn Wrap & Fidelity. This gives us access to Parmenion’s award winning range of active and passive ethical portfolios, funds from Liontrust, Aegon, Janus Henderson to name a few and model portfolios from Rathbone Greenbank, EQ Investors and Tribe Impact Capital.
This diverse selection enables us to match your specific preferences with an appropriate ethical investment solution or build a tailored portfolio of funds.
Life Insurance Company
Many well known life insurance companies have ethical funds among their available investment offerings which target specific outcomes.
Royal London have a range of funds and portfolios specifically designed for pension savers. Their ‘Governed Portfolio’ range allows for the default global equity fund to be replaced by one or more of their sustainable equity funds that are shaped by social, environmental and other ethical parameters. Their ‘Sustainable Leaders Trust Fund’ is one of the UK’s best known ethical funds with an emphasis on investing in companies who can demonstrate strong environmental, social and governance (ESG) management.
The Legal & General Investment Management (LGIM) ‘Future World Fund’ is described as ‘a new solution designed for pension funds and investors looking for an alternative to a traditional index strategy, while also addressing the long-term financial risks of climate change’.
The aim is to reduce risks from future climate policy and technology changes and invest in companies that support a low-carbon approach.
Legal & General (LGIM) looks after over £900 Billion and are one of the world’s largest asset managers which, makes it possible for them to influence companies they choose to invest in and bring about positive change.
Prudential now offer their PruFund Planet range for investors seeking to avoid exposure to the volatility associated with traditional investment funds.
Having determined your ethical profile we can establish if any of the offerings available via the life office option can meet your requirements.
The life office option may also benefit from lower annual management charges compared to the Platform choice.
Discretionary Fund Manager
Discretionary fund management is a form of investment management where decisions are made by the fund manager on the client’s behalf.
It is considered “discretionary” because investment decisions are made at the fund manager’s discretion.
This requires a certain degree of trust and so clients are encouraged to meet with their fund manager to understand the process and how their desired outcome will be achieved.
We offer access to a hand picked selection of prestigious, London based discretionary fund managers able to build a portfolio just for you and we encourage a face to face meeting to discuss your objectives.
Discretionary fund management is generally only offered to high net worth clients who have in excess of £200,000 to invest.
Contact us if you would like to find out more.