Investment Types - Ethical Investments
Ethical Investments
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Ethical Investments

Ethical investment means choosing to invest your money in companies that act in a socially or environmentally responsible way. 

Ethical investment may be known as responsible, sustainable or green investing and can incorporate many ideals, from a desire to support environmentally friendly companies to boycotting industries considered harmful.

For most investors, the easiest way to invest ethically is by choosing a fund, rather than trying to identify shares themselves. And ethical funds have been around for a while – Friends Provident launched the UK’s first one in 1983.

Ethical funds work in the same way as other funds in that the manager picks a range of companies to invest in. But his or her choice is limited by the fund’s chosen ethical screening.

Funds often positively and negatively screen companies before they are selected for investment. A company chosen for its positive aspects might, for example, be involved in pollution control or alternative energy sources. Exclusions are easier: usually ethical funds will not invest in companies involved in the arms trade; in animal experimentation and testing; in the alcohol, tobacco, gambling or pornography industries or those with businesses in countries with oppressive regimes.

Ethical funds often use the FTSE4Good indices as a benchmark for their selections.  However, companies included in the FTSE4Good indices, which has broad criteria for picking companies, may not always appear ethical. For example, BP was once controversially listed in the index and was included in some ethical funds. It was removed from the index shortly after the Gulf of Mexico oil spill.

 Investors need to be aware of what fund managers decide is acceptable for investment. There are many shades of green – some funds have stricter criteria than others so make sure that if you have a particular ethical reason for investing that the fund fits your needs.

There are around 90 funds in the UK which are ethical or environmental, with Jupiter Ecology and the long-established F&C Stewardship among the best known. You can hold ethical funds in an investment Isa or in a pension plan, which will protect your profits from the taxman.

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