Is it hard to invest ethically?
Investors may be concerned that their ethics and investing won’t mix, and that investing will mean compromising their principles. In the following questions and answers, our sister company, Quilter Cheviot, explores how the key to dealing with these issues is to ensure they understand what is meant by ethical investing.
What is ethical, responsible and sustainable investment?
Often, the best place to start with a potential client is to ask what they are looking to achieve. This can typically be broken down into three areas:
- Ethical – ‘I don’t want to invest in certain companies.’
- Responsible – ‘I want to invest responsibly and make my voice heard on environment, social and governance issues.’
- Sustainable – ‘I want to invest my money in companies making an active difference to the world.’
Does your client want to invest in certain companies?
This typically applies when someone has a particular opinion or religious belief that prohibits them from investing in something. This is fairly easy to deal with through a negative screening approach, where you can screen out areas your client doesn’t want to invest in. For example, if your client objects to the tobacco industry, you will naturally filter out tobacco companies like British American Tobacco.
Your client needs to think about how widely they want to set their exclusion criteria though – will they also avoid companies that sell cigarettes? This will add significantly to the number of companies which they cannot invest in and may lead to unintended consequences.
Does your client want to invest money in companies making an active difference to the world?
There are people who want to go a step further, and use their investments to fund companies that positively impact the world. Consider funds which may aim to invest in companies promoting solutions to issues like climate change, food supply and demand imbalances, and water scarcity.
Does ethical investing affect your client’s returns?
There is no easy answer to this question – the impact of ethical investing ultimately depends on what exactly your client’s criteria are.
Ethical considerations can affect the look and feel of your client’s portfolio, including the balance between different company sectors, so they need to think about how to maintain a sensible investment balance. That involves making sure they are well diversified, not over-exposed to any one type of market risk, and that what they are invested in will still deliver on their financial objectives.
If you would like information about responsible investing at Quilter Cheviot, visit their website