For ethically-minded investors, there are a few things to think about when you are choosing an ethical investment fund. If you are worried as to how your money is being used in the majority of investments, your main concern will clearly be to ensure that any ethical fund that you opt for is in line with your ethical principles. This is undoubtedly something that should be given a lot of thought, but beyond this, there are other factors that should be considered as part of your decision.
Things To Consider When Choosing An Ethical Investment
Where Does The Fund Invest?
There are three main approaches to ethical investment: screening, preference/best-of-sector, and activism. Screening can be negative – excluding certain companies based on their activities – or positive – favoring certain companies based on their contribution to society and the environment.
Preference approaches use social, ethical and environmental factors to encourage a decision when all others factors are equal. Activism involves trying to influence companies to have a more positive impact on society and the environment.
Even within the ethical investment sector, funds will use varying approaches to arrive at their ‘ethical’ tag. Don’t just assume that a particular ethical fund will be what you are looking for just because it is ethical.
Some ethical funds will be explicit in terms of the exact approach that they take in screening companies. If in doubt though, see if you can find their policy to make sure that you are investing in an ethical fund that definitely fits your personal criteria.
Some funds will put forward a clear and decisive message to confirm what their ethical policies are. For example, they may state that they do not support companies who lend to oppressive regimes or that they only support companies who have a strong commitment to making a difference.
You can choose to find ethical funds by yourself but be aware that this is a time-consuming and often complicated process. For long-term investments, understanding the set-up of the main types of investments and how they differ from one another will be hugely important and this is just one reason why many ethical investors prefer to consult an independent financial advisor who specializes in ethical investment to help them make a decision.
He or she will work with you to narrow down your choices. He or she will question you about your social, environmental, religious and ethical concerns so that they can build up a picture of the positive and negative screening that should be adopted, which can then be used to pinpoint ethical funds that are a good match. Researching funds to assess whether they are a good match for your ethical criteria can be a lengthy process.
How Is The Fund Expected To Perform?
Your main motivation for seeking out ethical investments was to ensure that your investments are not being used to fund activities that you are strongly opposed to but as an aside, you’ll still want to know how your fund may perform. Contrary to popular opinion, ethical funds can and do make a profit for investors.
Many have performed very well in the United Kingdom, where ethical investment has been growing in popularity for a number of years. This is a difficult one to assess though. As with investments in general, it is difficult to predict how an ethical investment fund may perform over its lifetime.
You can look at how particular ethical funds have performed in the past but this is no guarantee as to how they will perform in the future and even an independent financial advisor may not be able to offer too much advise to future performance levels.
What Are The Fees And Charges Involved?
Expect to pay a commission when you invest in an ethical fund. Annual management fees will also need to be factored in. Ethical investment funds can charge higher fees as the investments are more complicated and require more research so this is definitely an area worth thinking about when you are choosing where to invest.