Socially Responsible Investment or ethical investment
· Socially responsible investments (SRI) - actively screen out investment in armaments,
tobacco and gambling for example
· Social Impact Investment (SII) - target investment in the building of schools and
hospitals for example
· Social Enterprise Investment (SEI) - organisations that pursue a combination of
social and economic objectives
also collectively known as ethical investment, the strategy of focusing on the positive
social and/or ecological impact of a company, in addition to its financial return.
UK SRI market
In the UK the main SRI market is represented by the FTSE4Good index. This index measures
the performance of companies on globally recognised corporate responsibility standards
which cover the following categories:
· Environment – working towards environmental sustainability
· Social and stakeholder – developing positive relationships with stakeholders
· Human rights – up-holding and supporting universal human rights
· Supply chain labour – ensuring good supply chain labour standards
· Countering bribery
For further information see Links to on the right hand side of this page
► Ethical Investment - definition
Joint Equity the ethical Company and ethical investment route
What is being ethical? We all have some idea of what it means to be ethical in our
approach to others, to animals and to the environment. But what is ethical investing
and can it work for you?
Ethical investment, often known as Socially Responsible Investment (SRI), can be
confusing as there are so many shades of “green” funds available through unit trusts,
open ended investment companies and investment trusts. Some funds are more environmentally
friendly than others.
Companies also have different approaches to defining ethical. For example, British
American Tobacco would not be classed as ethical by organisations such as Cancer
Research. However, BAT has gone a long way to improve working conditions, with fairer
wages and improving human rights issues in its overseas operations.
Many UK and global companies adopt strict disclosure policies, which means they are
making information about their business practices publicly available. You can access
this on websites or company literature.
However, not all companies do this and it can be difficult to get this information,
let alone make an informed choice about investing in the company. Organisations such
as Greenpeace, Amnesty International, the World Trade Organisation and EIRIS – the
Ethical Investment Research Service – can furnish you with information or point you
in the right direction.
Fund managers have different ideas about which companies would be the most socially
responsible and ethical, while providing good returns. Managers can select their
stocks in a variety of ways and this is something you should discuss with an IFA
when trying to decide which fund would suit you best.
Negative Criteria Some funds actively screen out companies listed on the UK or other
global stock markets that are involved in businesses such as tobacco production,
deforestation, the arms trade and animal testing. This is known as negative criteria.
Not all managers screen for the same things – a point you should discuss with your
Positive Criteria Other funds prefer to use positive criteria such as looking for
companies that produce things to help the environment, such as sustainable energy
or recycling companies.
Engagement Other funds “engage” with companies by using the manager’s power as a
shareholder to push for changes to the way it deals with human rights, the environment
and corporate governance issues. This means managers will not screen against a good-performing
company to the disadvantage of investors, but will try to influence the company for
As an example, British Petroleum has gone a long way to clean up its act, which makes
it one of the most ethical companies in its sector and therefore a suitable investment
for many SRI managers.