Ethical investment combines the social or environmental considerations of the investor with their financial objectives. It can be found throughout the industry, in the form of Unit Trusts, Investment Trusts, pensions and savings schemes, and is growing at an impressive rate. Traditional ethical funds are involved with a positive and negative selection process, where money is invested in companies that make a positive contribution to the world and withheld from companies that do not. This strict screening method has perhaps fuelled the idea that ethical funds have been unable to compete with their unconstrained counterparts in terms of performance, but it is not true to say that following your conscience will mean poor performance and ultimately poor returns on your investment.
The first ethical fund was launched in 1984 and there are now around 100 retail ethical funds in the UK. Further interest in the sector can be seen in the Ethical Investment Research Service (EIRIS) figures, which state that the ethical funds industry totalled £9 billion in 2008, up from £1.5bn in 1998.
The Government has started to pay serious attention to the ethical issue, as displayed in its involvement in the UN’s 2009 Climate Change Conference in Copenhagen. It also demonstrated a growing interest in ethical funds when it enacted a law requiring pension funds to disclose whether or not they incorporate any social, environmental or ethical assessments into their funds' investment strategies in July 2000.
The developments in the ethical sector suggests that we are changing the way in which we make our investment decisions, thinking more about our influence as shareholders.