Essentially, fund managers use one of four main ethical investment strategies to help them select stocks (or equities) for their portfolio's. These are:
- Preference. Companies within an industry or sector are rated for their policies and performance against environmental or social criteria. Fund managers often look for a 'best in class'.
- Thematic. Themes are used to try and identify industries or stock market sectors which have the potential to influence the world in a positive way.
- Ethical screening. Companies are either included or excluded on investment grounds for their ethical policies and behaviour before a fund manager even looks at them! The fund manager is then choosing investments from a selection of companies which already meet high social or environmental standards.
- Positive engagement. There are many companies who 'could
do better' and fund managers may purchase blocks of shares in this type
of stock. Once bought, the manager uses his influence at boardroom
level to try and pressure the company to change policies and behave in a
more responsible manner.
Watch These Free Videos And Learn How To Trade The Stock Market
As you might imagine, it is important for each fund to announce their policies so that investors can clearly see which types of business are included and excluded.
With the expansion of environmental and ethical funds since around 2000, there is now a very wide range of funds for an investor to choose from. It is now almost possible to invest for the long term with almost every possible quirk of morality included!
Whilst we agree completely with the idea of a social or ethical
conscience in investment - and life - this is a very complex area. This
complexity has sprung a whole new area of research analysts and
consultants so that fund managers can outsource this task as required.
Your author knows a self-employed consultant that provides ethical guidance (including religious) to hedge fund managers! He charges by the hour, plus a retainer of course, for acting as a consultant and talking through moral issues with fund managers as and when they need guidance. What a specialised occupation!
There are companies which offer independent ethical research to help fund managers. They act as an ethical policy monitor to keep watch on an ongoing basis. As with so much in the world of investment, this specialised research is outdsourced to small teams of analysts that follow the main 'green' companies. It may also be that outsourcing this task also helps to insulate the management team from any poor ethical decisions - they are able to say that they "hired the best to help us".
Most investment banks now maintain a team of ethical fund management analysts so that so that they can offer client reports, 'colour' and guidance to their best customers.
For more information about ethical investment related topics, please visit:
What Is Ethical Investment?
The Ethical Investment Dilemma
How And Why Does Positive Engagement Work?
Are Ethical Investment Funds Higher Risk Than Other Similar Funds?
What Activities Does Negative Screening Filter From Ethical Investment Funds?
What Is Positive Screening?
Should You Be Investing In Water?