Demand for globally diversified ethical investing increases

Funds and Investment Trusts September 26, 2016 by Marina Gerner

One in four independent financial advisers (IFAs) has seen an increase in client demand for ethical investing over the last few years, but only 43 per cent of advisers are satisfied with the current range of ethical investment options, according to research by Heartwood Investment Management.

It is worth noting that this research had a small sample of only 80 UK intermediaries and may therefore not be representative. But it is still indicative of a trend towards a more responsible and ethical kind of investing.

The data revealed that 81 per cent would prefer to invest in a globally diversified ethical portfolio, while only one in 10 would choose a single-strategy ethical fund. Further, the majority (62 per cent) of intermediaries would prefer to invest in a diversified ethical strategy that applies both positive and negative screening criteria.

How ethical funds find gems and avoid sin stocks


Traditionally, ethical funds have used a process called negative screening to exclude companies that produce weapons, tobacco, alcohol, porn, gambling and nuclear power.

In contrast, positive screening focuses on investing in companies that make a positive environmental, social and governance contribution by having good human rights, labour rights and equality records, for instance.

While negative screening tends to be product based, positive screening is conduct based.

Today, there are around 90 collective investments that use avoidance, inclusion, or a blend of the two, estimates John Ditchfield, partner of financial advice at IFA Castlefield.

Negative screening is a 'simple approach to markets, that avoids activities which have a detrimental impact on human life, like smoking', he says. Meanwhile, 'the bit of the market that captures people's imagination and interest tends to be in positive investment'.

Noland Carter, head of Heartwood Investment Management, says: 'Clients are increasingly looking to have portfolios managed in a way that is aligned with their values and ethical concerns.'

Matt Hollier, head of investment product at Heartwood Investment Management, says: 'Our research has clearly identified a growing demand for ethical investing amongst IFAs and their clients.

'It is also clear that a significant majority of advisers prefer an investment approach that blends a positive ethical overlay with standard negative screening.'

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