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How to… invest your money ethically

Financial advisers Kesh Liladhar and James Cheetham explain how to make eco-friendly investments

GPs who recycle waste and strive to reduce non-renewable energy consumption are helping the planet as well as avoiding unnecessary expense. If, however, you want to go green in more areas of your life, give some thought to your personal investments.

Do you know whether the schemes in which you save are in turn invested in industries that are major environmental polluters or in trades (arms dealing, perhaps) of which you disapprove?

As independent financial advisers, we have noticed a significant shift of interest in recent years towards socially responsible investment. While only a minority of our GP clients insist on investing all their savings ethically, many do wish to hold at least a proportion of their assets in this way.

Ethical funds invest according to a wide range of social, environmental and other criteria. A useful general introduction is available from the Ethical Investment Research Services website (see Resources box), but the main approaches are set out here.

Screening companies
Screening is about both negative and positive vetting. You may wish to exclude companies from your portfolio because of their involvement in certain activities, such as the fur trade or tobacco industry. Likewise, you may want to include companies that make positive contributions to society and the environment, such as energy-efficient technology and organic farming.

Investor preferences
Fund managers or investors can apply social, environmental and ethical guidelines to select preferred companies to invest in when all other factors, such as sector type and financial performance, appear equal. For example, a fund manager who has to invest in oil shares may apply a ‘best-in-class’ approach and select the oil company with the best environmental management record.

Active engagement
The investors or their representative, such as the fund manager, can also actively encourage companies to adopt social and environmental best practice in the management of their business.

Some ethical funds have their own internal research teams so they can identify suitable investments for their fund’s portfolio.

Choosing green funds

Socially responsible investments (SRIs) are not an asset class or sector in their own right, but a way of investing. As with any investment decision, GP savers should first consider the risk they are prepared to tolerate, and why and for how long they are investing.

A GP needing to cash in within five years may, for instance, wish to consider a deposit account or cash-based individual savings account (ISA) with, for example, the Co-operative Bank or its internet partner Smile: both apply stringent ethical criteria.

If investing for the medium- to long-term, there is a range of funds available in the equity (shares-based) and bond markets. These can normally be held in tax-efficient wrappers such as investment ISAs, personal pension plans and life insurance-linked bonds.

Fund performance
There is a view that investing in SRI funds may ease your conscience but not deliver top performance. While it is true that you have less choice, there are SRI funds that regularly hold their own and, in some cases, outperform their traditional counterparts.

Kesh Liladhar and James Cheetham are medical specialist IFAs at Bailey Beaumont Financial Solutions Ltd — (01476) 400027 or admin@baileybeaumont.co.uk


A brief history of ethical investment


  • The roots of socially responsible investment (SRI) in this country lie in the religious movements of the 19th century, such as the Quakers and the Methodists. As time went on, more churches and charities began to take account of ethical criteria when making investment decisions.
  • In more recent times, events such as the Vietnam War and concerns relating to the former apartheid regime in South Africa led to the formation of socially responsible funds.
  • The UK’s first ethically screened unit trust fund was launched in 1984 by Friends Provident. Today there are more 90 SRI funds as well as other SRI financial institutions, including banks and retail organisations.

Save ethically and successfully

  • Consider which strategy — screening companies, investor preference or engagement — best meets your investor profile.
  • Decide for how long you are prepared to invest and what level of risk you are comfortable with.
  • Find out about the fund’s or company’s underlying assets
  • Consult an independent adviser for specific recommendations.
  • Review your investments regularly.

Resources

 

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