ethical investing guide

Ethical investing is just like any other type of investing, be it in funds, shares, bank accounts or otherwise, except that the company that invests the money for the consumer undertakes not to use that money to fund certain activities or behaviour that are believed to be harmful to the environment, to people or to animals and wildlife. This may mean, for example, that a fund management company will not purchase shares in arms companies or firms that develop harmful pesticides, or that a bank will not lend money to or otherwise facilitate business for such companies.

Financial companies that practice ethical investment may not focus on such negative criteria, but positive criteria instead, meaning they will seek out businesses that benefit the environment or the community. The range in policies is sometimes labelled by colour: a 'light green' company will avoid businesses whose actions or products are harmful to the environment, while a 'dark green' company will actively seek out enviro-friendly or community-based businesses to invest in.

An increasingly common term for ethical investing is 'socially responsible investing', or SRI. SRI focuses on the positive rather than the negative, and instead of blacklisting entire industries, it prefers to pick the company within the industry that is doing the most to improve its business practices, and give that company encouragement in the form of investment. This positive reinforcement is seen as more likely to improve business practices overall.

It's important to remember that even though you may not directly invest your money - ie by buying shares - you may be indirectly investing it via a mortgage, pension or savings account, and by investing ethically you can have a say in what sort of activities your money supports.

It is also important to know that the term 'ethical' is largely self-awarded - there is no standard to which companies must conform before they can label themselves ethical. Organisations such as EIRIS, the Ethical Investment Research Service, provide information into companies' ethical behaviour for independent investors, fund managers and charities alike.