Last updated: March 2014
Ethical investments - the basics
Ethical investment has grown from a small idea and a single fund in the 1980s to a complex industry employing thousands and managing billions of pounds. Green and ethical funds in the UK now have £11 billion invested, up from £4 billion ten years ago.1 And the now-familiar story of ethical funds outperforming non-ethical funds was repeated in 2013 (36% growth over 3 years as opposed to 31% for non-ethical).
The complexity of choices – more than 90 funds and thousands of potential ‘direct ethical investments’ – means that Ethical Consumer is not going to be able to provide all the answers in the space we have. However, the specialist knowledge we bring allows us to point you towards trusted groups that can provide you with the answers you need. There are now far more ethical investment intermediaries – often web based – than there ever were, and we hope to list most of the important ones in this guide. Below we list five key players. We can also bring some useful critical reflection because, amongst the excellent opportunities, there is – as in most ethical sectors – also a fair bit of rubbish.
Two main types of ethical investment
Just as there were when we first reported on ethical investment in 1990, there are still two main ways to invest ethically:
Investing in pooled funds
Putting money into ethical unit trusts (or Open-Ended Investment Companies (OEIC)) is still the main way that people invest ethically in the UK. In this special report we reproduce results from a detailed review of these funds published by the excellent campaign group ShareAction. We then use this data to help steer our own Product Guide and ranking table ‘Choosing an Ethical Fund’ where we focus, as usual, on some of the more controversial shares held by some of these funds.
Investing directly into ethical projects
Whereas the world of ethical funds has been accused of stagnating, the world of direct ethical investments is booming. A growing public appetite to invest in renewables, coupled with innovations in new technology easing the process, has led to a rapid growth of new intermediaries. We reproduce a ‘Choosing Direct Ethical Investments’ listing. The idea of crowdfunding has also revolutionised this area whereby online platforms allow people to invest as little as £5 a time.
Getting financial advice
Ethical Consumer may be good at advising on ethical choices but we are not qualified financial advisors. Clearly investing £10 via a renewable energy website does not require advice, but investing tens of thousands of pounds is a serious business. New developments in the field such as online fund supermarkets and direct investment websites mean that a confident investor – with a sound knowledge of the markets – can press ahead without external guidance. Almost everyone agrees though, that for significant sums – or for pensions – it is foolish not to seek formal advice and we have therefore produced a guide to ‘Choosing an Ethical Independent Financial Advisor’ (IFA).
Of course there is plenty of good quality online investment advice, with some of the best (non-ethical advice) coming from the Consumers’ Association’s ‘Which?’. They have published a checklist for people just beginning to think about investing – reminding them to make sure they have all their formal defences in place first.
In summary they advise:
- Pay off debt first – investment returns are rarely higher than debt interest.
- Get life and sickness insurance – especially if you have a family.
- Sort out a retirement plan or pension
- Have a fair bit of savings in cash for emergencies – at least three months’ salary is apparently the general rule.
Five key players in ethical investment
EIRIS The Ethical Money (EM) website is a non-profit initiative of the EIRIS Foundation, that provides independent information on Green and Ethical Funds. The website contains a database of Green and Ethical Funds. Email: firstname.lastname@example.org
UK Sustainable Investment and Finance Association (UKSIF) The UKSIF website contains a directory of sustainable and responsible financial services. All services listed aim to support sustainable economic development, enhance quality of life and safeguard the environment. Tel: 02077499950. Email: email@example.com
ShareAction (formerly FairPensions) is the leading NGO that monitors and engages with the investment industry - helping pension companies to consider human rights, business ethics and the environment in their pension policies.
Worldwise Investors’ website acts as a free news website on ethical investment issues. Email: firstname.lastname@example.org
EUROSIF The European Social Investment Forum’s website provides free information and study results on sustainable and responsible investing.