However, rather than invest directly in these businesses, there is a range of ethical funds that allow investors to pool their money with other like-minded investors to engage with companies.
Finally, community investing is another option for investors. These investments provide low-interest-rate loans to people in low-income communities, from villages in developing countries to blighted urban areas in major cities – communities that cannot access capital in traditional ways.
Community development banks and credit unions offer loans that finance affordable housing, small business loans and other local projects. Community development loan funds are non-profit institutions that offer financing for similar projects in low-income communities.
For investors wondering how they can make a difference, responsible investing is one of the most powerful ways to effect change. Investors can influence the behaviour of corporations and governments around the world, bringing about positive changes in society.
Fiona Reynolds is managing director of Principles for Responsible Investment (PRI)
ADVISER VIEWS
Martin Bamford, managing director, Informed Choice
We always ask our clients about their preferences for sustainable investment, but rarely find that investors are keen to pursue this sort of strategy.
Given the choice between accessing a wide range of investment funds and sticking solely to funds with sustainable characteristics, the vast majority of investors seem to prefer the former.
Patrick Connolly, certified financial planner, Chase de Vere
Many investors are interested in the concept of investing ethically. However, the overriding objectives for most investors are maximising returns and managing risk, and both these are more difficult to achieve if investing ethically.
If people have strong beliefs that they want to replicate through their investments, then the easiest way to do this may be through buying individual company shares. However, buying individual shares rather than collective funds will probably lead to the investor taking greater risks.
Diversification is a major problem for ethical investors, which is why ethical portfolios can be volatile. Ethical portfolios will avoid some sectors, such as tobacco, and typically have lower weightings in others like oil and gas.
So, overall while there might be some positive reasons for wanting to invest ethically, investors must accept they are likely to have to make some compromises – either on exercising their beliefs, or on their investment returns and volatility.
