There is a broad range of SRI funds with slightly different criteria, to suit slightly different personal preferences - and it’s not just investment funds that come with a green tinge these days.
As Olivia Bowen, director and financial adviser at Gaeia, says, the range is huge: “we can meet most people’s needs with ethical bank accounts, mortgages, Oeics, pension and life funds, model portfolios, bespoke discretionary portfolios, social impact bonds, limited ETFs, with-profits funds and trackers, even industrial provident societies like investing in Bolivian forestry via the Cochabamba project.”
There are many sub-strata of product within the SRI investment universe, with different means of focusing capital and it’s important advisers know their options when a client says they want to invest “ethically” or “responsibly”.
In terms of options, advisers are broadly faced with a number of choices:
• Ethical funds can use negative and positive screening or a mix. Negative screening involves choosing not to invest in companies involved in certain types of business due to ethical reasons. Positive screening looking for industries that will benefit from sustainability trends such as climate change, healthcare, education, green-technology, etc.
• Responsible engagement funds are mainstream vehicles that use investor stewardship to ensure companies are held to account and, where relevant, hear concerns over how the company is run.
• Impact investing means the investment makes a measurable beneficial environmental or social impact such as reducing CO2 emissions, providing housing or healthcare, or inoculations etc. “This is an emerging area and while there is a lot of interest from high net worth and institutional investors, there are few vehicles available for private investors,” says Mike Appleby, investment manager, SRI Team at Alliance Trust.
• Thematic investing covers various fund types, such as: clean technology funds; environmentally themed funds focused on specific issues such as climate change or a broad pro-environment strategy; and sustainability themed funds, which select and managed their investments according to the fund manager’s view of how well the company is responding to the need for more sustainable business practices.
“None of these terms are mutually exclusive,” says Mr Appleby, “it is possible to have a fund that has all of these elements in them.”
These funds are typically available across much of the usual range of geographical regions such as UK, Europe, Global in equities, as well as multi asset balanced funds.
“Areas which have less products are in equity income products,” he says, “and for pure impact retail investors, this is just nascent but may well be huge in time.”