Many of us would like to be able to reflect our personal values in our investments but have been held back in the past due to lack of choice and perceived poor performance of funds in the ‘ethical’ space.
Historically, ethical or Socially Responsible Investing (SRI) has been about excluding stocks in sectors such as tobacco, gambling, defence or companies with a high environmental impact. These exclusions have led to some periods of underperformance from ethical funds when areas such as tobacco or mining outperformed. 
However, over the past few years the landscape in this part of the investment market has changed dramatically.
Positive Impact
The world is changing and social and environmental concerns are growing. Every day we are confronted with mounting evidence of the damage we are doing to the planet through the likes of plastic pollution and climate change, while social problems such as lack of affordable housing, poverty and social divide increase at both local and global levels.
All the while a growing global population is increasing demand on resources such as food, water and healthcare.
While this may sound like a morose picture, much work is taking place to tackle these problems at a global level through policies such as the UN Sustainable Development Goals and at a regional and company level.
SRI is evolving in line with these developments and the focus has moved away from the purely exclusionary focus on areas where people don’t want to be invested, towards positive investment into industries and companies that can provide positive contributions to society.
Investment can range from the more obvious areas such as renewable energy and social housing funding to businesses developing technologies and products to combat pollution, improve healthcare or reduce obesity.
Positive Returns
Increasing global news coverage and the use of social media has allowed a spotlight to be turned on to corporate behaviour. Business practices that many find unacceptable are being highlighted, leading many companies to pay more attention to their environmental, social and governance practices.
SRI looks at how companies act generally: Are workers paid fairly and treated well? Does the company act responsibly in the communities in which it operates? Does the company act in an environmentally responsible way? Is it well governed with directors acting fairly and in the best interests of all stakeholders?
There is growing evidence to suggest that companies with high standards in these areas of environmental, social and governance (also known as ESG) perform better overall. Implementing better practices in these areas can make businesses more efficient and mitigate risks of operational shortfalls and reputational damage. This, in turn, provides better returns to all stakeholders, including shareholders, providing both a positive impact and positive returns.
This is the first in a series of features on SRI. Future articles will focus in more detail on areas such as impact investing, investing for social benefit and investing for the benefit of the environment (green investing).
Amanda Tovey is head of SRI & direct equities and a senior investment manager at Whitechurch Securities – an award-winning wealth management firm headquartered in Redland, Bristol.
If you’re interested in this subject or there is a particular topic you would like us to explore in more detail – or if you just want to find out more – then email dfm@whitechurch.co.uk and we’ll get in touch.
Whitechurch offers a range of ethical portfolios. Ranging from model portfolios which adhere to a predefined and comprehensive set of ethical requirements which we believe fit the needs of most investors, to bespoke solutions for private individuals, charities and trusts. Find out more at www.whitechurch.co.uk
