New guide categorises ethical funds and how they invest

A new guide to ethical funds helps readers identify funds’ ethical approaches and principles.

Funds and Investment Trusts September 10, 2019 by Tom Bailey

Investors hoping to incorporate environmental or other ethical concerns when investing, face a litany of acronyms and terminology: sustainable investing, environmental, social and governance (ESG), Socially responsible investing and social impact investing, to name a few.

- Explore Money Observer's ethical portfolio: nine funds to combine principle and performance

For many investors, this can be overwhelming. According to a recent poll by interactive investor (Money Observer’s parent company), 40% of investors find the terminology around ethical investing too complex, with 15% citing it as their main barrier to adopting this style of investing.

With this mind, the online investment platform, working in association SRI Services, has grouped socially responsible and environmental funds together into its  ‘ethical iinvestments long list.’

The long list contains over 140 socially responsible and environmental funds, investment trusts and ETFs available on the platform. Each was chosen based on a combination of whether the managers say they focus on ethical, social and/or environmental issues, the language they use and their responses to SRI Services.

These funds and trust are then broken down into three categories based on their investment styles, ACE: Avoids, Considers and Embraces.

The long list and new categorisation should help to “consign traditional ethical jargon to the recycle bin,” says interactive investor. According to Moira O’Neill, head of personal finance at interactive investor: “The ‘Avoids, Considers, Embraces’ categories are a clear, jargon free steer to aid selection, without putting any funds into a ‘niche’ box that can easily be ignored.”

Interactive investor ACE investment style Definition
Avoids Funds that focus on simply excluding companies, sectors or specific business practices
Considers Funds that carefully consider an often wide range of ethical and/ or environmental, social and governance (ESG) issues or themes when balancing positive or negative factors.
Embraces Funds that focus on companies delivering positive social and/ or environmental outcomes

 

Julia Dreblow, director of SRI Services, adds: “Through the ‘ACE’ list, interactive investor has highlighted that different funds take different paths and therefore suit different people.

“Although there is significant variation within each of these three groups, each of the listed funds has more to say about ethical, social and/or environmental issues than the funds that are not on this list.”

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