» What
is ethical money?
» How your
investments can be ethical
» Positive
screening
» Negative
screening
» Thematic
investment
What is ethical money?
Ethical money relates to an awareness
of the positive social and ecological effects of businesses
and companies' activities. The money can be channelled into
a variety of financial products: Ethical money is not only
limited to buying stocks and shares in ethical companies,
but can also be applied to banking, saving, retirement and
mortgage products. The Co-operative has a variety of ethical
banking products. In addition, the co-operative promises not
to lend savings to companies involved in activities that may
be considered unethical, such as weapons manufacturing and
child labour. The Ecology savings and loans, for example,
will only provide mortgages to those intending to buy energy-efficient
homes or for people looking to build new homes from reclaimed
or sustainable materials. The Society also looks favourably
on people who are interested in renovating a derelict building,
an area which traditional lenders usually avoid.
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How your investments can be ethical
Regarding typical banking products,
namely current and savings accounts and mortgages, ethical
money is attained when the bank does not invest in companies
that are known to be involved in ethically negative activities
and businesses. Furthermore, a number of banks and savins
and loans insist on providing a pro-active ethical investment
policy. The issue of ethical money becomes more complicated
in relation to ethical investment products. This is because
ethical investment funds have different perceptions and definitions
of what does and does not constitute 'ethical'. Generally,
mainstream funds invest in a company on the basis of its financial
performance. While ethical funds are equally concerned with
financial performance, they also have to take into consideration
the company's social and environmental record. Overall, there
are five main approaches to ethical investment, which are
referred to as positive screening, negative screening, thematic
investment, best of sector, and engagement.
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Positive screening
With positive screening, a company's
activities will be compared to a list of defined positive
practices before it is considered as a candidate for investment.
Industries that are usually subject to positive screening
include waste management, environmental technology, public
transport, education, telecommunications and renewable energy.
Positive practices also necessitate good working conditions,
energy efficient buildings and corporate recycling policies.
The Ethical Investment Research Service provides a list of
companies that are known to have a good social and environmental
record. This is then applied to the negative and positive
screening of funds. Funds that employ positive screening are
referred to as 'light green' funds. This means that they may
be related to companies with a record that does not completely
match the required standards. However, this does not necessarily
mean that these companies are less effective in achieving
the aims of ethical investors. In fact, light green funds
may possibly have more ethical potential than 'dark green'
funds because they give companies the motivation to examine,
review and reconsider their practice.
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Negative screening
With negative screening, a company's
activities will be compared to a list of defined negative
practices before it is considered as a candidate for investment.
Industries that are usually subject to negative screening
include the oil industry, the arms industry, logging and mining
industries, and the pornography industry. In addition, bad
employment conditions, poor health and safety records, and
poor pollution records are all considered negative practices.
The Ethical Investment Research Service provides a list of
companies that it considers should be avoided by funds. Funds
that employ positive screening are referred to as 'Dark green'
funds. These are viewed as the most ethical, or the greenest
investments available in the market. This means that they
are the least likely to have undesirable companies in their
portfolio. However, it is still debatable whether the negative
avoidance approach has any actual effect other than in limiting
the number of companies these funds can invest in.
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Thematic investment
Thematic investment relates to the
selection of companies that are particularly associated with
industries of the future such as renewable energy, health
care and public transport. These funds usually attend to companies
that relate to emerging industries, and therefore thematic
funds tend to have a higher percentage of smaller companies
in their portfolio.
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