For many, investing ethically is becoming an increasingly significant factor in their investment objectives. However, what is really meant by the term `Ethical Investment`? This is an ‘idea’ and a way of considering Ethical Investing in more detail, is to break it down into separate sections.

These sections include Environmental, Social & Governance; Socially Responsible Investing and Impact Investing. Taken individually, these are;


Environmental, Social & Governance (ESG)

Here, issues are examined in order to calculate the environmental and social impact of a company`s activities. The former may be more visible of the two, given their physical manifestation. However the latter can be far ranging and include how the local community is treated, both whether they are employees or just local residents. Governance issues covered include, but are not limited to, corporate best practice, management policies, senior management remuneration and the interest of other stakeholders.       


Socially Responsible Investing (SRI)

For SRI investors, they will typically be adopting a non-selection approach. They will seek to avoid investing in businesses operating in unacceptable areas. These typically include tobacco, alcohol, armaments, polluters and pornography. This was the original approach adopted by SRI. The adoption of the `best-of-breed` principle, a positive selection basis, enhanced this approach. Companies are selected which are engaged in positive social policies. An example is an oil company dedicated to operating to the highest, cleanest standards.  Each investment company will have their own, individual criteria of what they believe demonstrates ‘social responsibility’.


Impact investing

In a similar way to adopting a `best-of-breed` selection criteria, this involves investment into companies which are actively seeking to positively enhance the environment. These companies can be involved in activities such as recycling, educating, and reducing poverty.


Conclusion

In summary, for many investors, making decisions by taking into account their own individual ethical stance is becoming ever more significant. Accordingly, both Advisers and Investment Managers must factor this into their thinking and investment decision-making processes.

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