Investments  

Defining the different ethical investing strategies

This article is part of
Ethical Investing - February 2014

Ethical

The term ethical investing can act as a catch-all and these types of funds can take a ‘dark green’ approach where all investments in companies with a link to perceived unethical areas such as armaments, gambling, tobacco, pornography, alcohol and so on are excluded. While at the other end of the spectrum a ‘light green’ approach may invest in companies with links to these areas providing they are making an effort to adopt an ethical approach, and positive rather than negative screening becomes the priority.

ESG

This usually stands for environmental, social governance and is where investors look for these factors when assessing whether to invest in a company. The UN Principles for Responsible Investing (UNPRI) is an initiative where signatories seek to incorporate environmental, social and corporate governance into their investment decision-making and ownership practices. This process can include engaging with investable companies on ESG issues.

SRI

Similar to ESG, this is socially responsible investing and according to UKSIF – the UK Sustainable Investment and Finance Association – these types of investors “seek to promote responsible investment and other forms of finance that support sustainable economic development, enhance quality of life and safeguard the environment”. Figures from UKSIF suggest the UK sustainable investment market was worth £1.03trn in 2012.

Thematic

This type of ethical investing focuses less on specific ethical criteria and instead invests in a particular theme, such as climate change, renewable energy, resource efficiency or environmental issues in general. The narrow focus of the investment remit automatically excludes many of the traditional businesses considered ‘unethical’ however some vehicles can or do add a further ethical screen on top of the regular investment process.