Lets get ethical

Following a responsible agenda

An ethical fund is an investment vehicle that will only invest in companies with a social, moral or environmentally responsible agenda. Each fund has its own set of criteria and rules about the types of companies in which it will and won’t invest.

Socially responsible investment (SRI) funds are slightly broader in their investment approach than ethical funds. An SRI fund might only invest in a company if they were animal testing for life−saving medicines, compared to an ethical fund that might never invest in a company that practices animal testing.

These two funds are both measured in shades of green. A "light green" fund uses more relaxed investment criteria when selecting stocks than a "dark green" fund, which has more rigid ethical or environmental requirements. Both ethical and SRI funds will "screen" or vet companies before investing in them.

Ethical funds will exclude companies that invest in "unethical" activities, such as making or selling arms or tobacco, this is known as negative selection. They only invest in areas that fulfill the particular investment company’s own ethical requirements for the fund.

An SRI fund will select companies that it thinks "do good", as well as those that might not instantly stand out as 100 per cent ethical, with the aim of promoting change from within. The fund combines both negative and positive criteria when creating its portfolio.

A climate change fund will invest in companies that are developing environmental solutions, such as building wind farms or solar power companies. Although the environment might play a part in the screening process for ethical and SRI funds, strictly speaking a climate change fund is a separate entity.

Levels and bases of, and reliefs from, taxation are subject to change.