Making sure the fund fits my client’s ethics

For example, do they simply want to exclude certain types of companies such as tobacco and alcohol or are they interested in investing in companies which are considered more sustainable, that is which are making a positive contribution to our world and society.

Depending on their requirements, Peter Michaelis, head of equities at Alliance Trust and head of sustainable and responsible investment at Alliance Trust Investments, says there is a fund for them out there.

Simon Howard, chief executive of UKSIF, says you need to discuss your client’s values and ethics in such a way they can be mapped onto the investment opportunities available.

Mr Howard says this is a great opportunity to build a relationship with clients and to show your expertise. The due diligence process for this type of fund needs be no different to the process for ‘normal’ funds.

He says: “Ask for evidence of an investment belief or “angle”, ask for evidence of process and adequate resources, ask for evidence of the application of the stated process.

“Look at holdings and see if they are consistent with what you have been told. Most managers with expertise in these areas are members of the UK Sustainable Finance and Investment Association (UKSIF), so check the UKSIF website for that.”

Before investing, Neil Cowell, head of UK retail sales for Vanguard, says socially conscious investors should carefully consider and research the theme and the screening standards a fund employs.

Mr Cowell recommends asking the fund manager the following questions:

1) What is their SRI investment philosophy?

2) What is the SRI screening process?

For example, Mr Cowell says a stock that is excluded by one socially screened fund or index may be included in another.

Mr Cowell says it is rare to find a “socially oriented” benchmark or fund that exactly reflects the screening preferences of any specific investor.

3) Does the manager have a corporate governance policy in place?

Mr Cowell says they should check how the manager is employing governance over the securities they hold on key topics, such as proxy voting?

4) Do the funds offer risk and return characteristics that make them suitable for portfolio construction, reflect the investors’ concerns and maintain broad market exposure?

Mr Cowell says he believes it is important for the fund to be broadly diversified to give investors the best chance of achieving their long-term investment and life goals.

Given the variety of SRI approaches, from ethical and ‘best-in-class’ to positive thematic investment strategies, Charlie Thomas, manager of the Jupiter Ecology fund, says it is important to understand the manager’s investment remit.

Mr Thomas says this helps to define the likely mix of risk and reward and therefore help to meet investor expectations in the long-term.

Jamie Sutton, director of Premier, says it is important to be as transparent as possible so that clients can make a clear decision as to whether their own ethical standing is aligned with the fund house’s investment approach.

Mr Sutton says SRI can often have hidden social or environmental benefits, and therefore advisers must ask an SRI manager to explain the full impact of their investment proposition. He says a good example of this can be found within forestry or timber substitute funds.

Mr Sutton says: “The environmental benefits of developing sustainable plantations are well known as it helps to avoid depleting the earth of its natural resources.

“However, plantations are often located in areas of extreme poverty, which can in turn provide rural communities with stable employment, a safe working environment, education opportunities, access to healthcare as well as improving the infrastructure of their region.”