Ethical Investing 

Three things to consider with ethical investing

  • Understanding what it takes to run an ethical portfolio.
  • Learn what the key considerations are when recommending a portfolio to an ethical investor.
  • To understand what the differences are between ethical funds.
Three things to consider with ethical investing

The first article I ever penned for the financial press, about 30 years ago, was simply called Ethical Investing.

I was of course proud that it was published, and, being an area I had not given lots of thought to up until then, thought it was a great idea full of ‘feel good’ investment opportunities.

It was a long time ago and, although I only recall a handful of unit trust options (according to UKSIF, the first retail ethical fund was launched in 1984), I was mightily impressed by the knowledge and enthusiasm of the fund management teams running the funds. They were specialists and really believed in what they were doing.

This got me thinking about what has changed over the last 30 years or so.

So, in 1984 the Friends Provident Stewardship fund was launched. The 1980s were a time of excess, where financial markets were booming, yuppie culture was well ingrained in the city and the ‘greed is good’ mind-set of some in the industry was viewed as a good thing.

Perhaps not the best time to launch an ethical fund, dubbed as ‘The Brazil Fund’ by some, not because of supporting good works in the Amazon Rainforest, but because of the more derogatory view that you had to be ‘nuts’ to invest in it.

I wasn’t even aware of the term ‘socially responsible’ back then, but even at the time I had the feeling that ‘industry’ could not carry on in that vein. I claim no specialist knowledge or insight, but if the future of the financial services industry was in the hands of people who only thought of money and no consequences, making cash and not things, something was going to give.

Without getting too evangelical about it, the public began to get more interested in the environment, social reform and wellbeing. Greenham common protests, Greenpeace, global warming, third-world exploitation by big companies and the start of a health revolution all became big news in the 1980s. Who can forget ‘The Green Goddess’ and Jane Fonda?

Back in the 1980s, ethical investing would be considered niche. A measure of success of this industry is that interest has been such that this category has been broken down into several sub-categories. Probably still known as just ‘ethical’ to most, some cursory background reading also sees the following:

  • Green.
  • Environmental.
  • Socially responsible.
  • Sustainable.
  • Ecology.
  • And, a new one to me, ESG (environmental, social and governance).

The momentum was there and the ‘ethical’ industry has never looked back since those early days. In terms of numbers, 1996 saw investment in ethical funds top £1bn and by 2004 had reached £5bn.

According to the Investment Association (IA), 2007 saw 1.2 per cent of all funds under management invested in ethical funds. Ten years on, and that figure is still the same at 1.2 per cent invested. In fact it has remained at 1.1 per cent or 1.2 per cent each year in between.

  1. Why was the first ethical fund dubbed the 'Brazil Fund', according to Mr Donaldson?

  2. What does Mr Donaldson say ethical investing would have been considered to be during the 1980s?

  3. How many funds does Mr Donaldson say he is aware of that are run on an ethical basis?

  4. Which of the following is NOT one of the three criteria outlined by Mr Donaldson?

  5. What does Mr Donaldson say is crucial to due diligence when picking a discretionary manager?

  6. They used to be considered as oddities but what does Mr Donaldson call ethical portfolio managers now?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Understanding what it takes to run an ethical portfolio.
  • Learn what the key considerations are when recommending a portfolio to an ethical investor.
  • To understand what the differences are between ethical funds.

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