Why invest ethically?
The UK's first ethical unit trust was launched in 1984 in the face of considerable scepticism from mainstream investors. Today, ethical investment has gained acceptance as more and more investors recognise that a failure to address environmental and social risks can have an impact on investment returns.
There has also been a gradual recognition that companies adopting a rigorous approach to ESG (Environmental, social and governance) issues marks them out as well-run businesses which may produce solid results and represent attractive investment opportunities.
Furthermore, growing interest in SRI is the reason why major initiatives, such as the Carbon Disclosure Project (CDP) and the UN-backed Principles for Responsible Investment (PRI), have attracted the support of investors of all types, including large institutions.
While many investors welcome the opportunity to invest ethically, they still expect good financial performance – and the evidence here is encouraging. Many years of practical experience and a number of studies1 have now shown that investing ethically need not result in underperformance. Indeed, a well-managed and balanced portfolio can outperform its ‘conventional’ peers over the longer term.
We should also consider that financial performance might not be the only way to measure the success of an ethical or SRI investment strategy. Social and environmental impacts are an increasingly important part of the equation for many enlightened investors.