The ethical investment minefield

Ethical and green investing has an increasingly high profile in the financial media ; but it may surprise you that ethical funds account for just over 1 per cent of money invested in funds overall. But this small percentage is rising and in response there are more investment products available to the ethically aware.  In February a new FTSE 100 ESG index which uses 300 metrics to assess a company’s performance on Environmental (eg pollution, biodiversity and climate change), Social (eg Labour standards, health & safety, consumer responsibility) and Governance issues (eg tax transparency, anti-corruption initiatives). Then it selects the 100 best performers for the index.

The big problem however is an individual’s moral compass is highly personal. For example someone may favour nuclear power as a way of reducing carbon emissions.  Furthermore, consider the following dilemma; testing cosmetics on animals is a practice banned in the EU, India, Israel and Norway, but cosmetics sold in mainland China are required by law to be tested on animals.  So any cosmetics company doing business in China has compromised its cruelty free credentials.

Mining companies can be responsible for serious damage to local environments.  Yet if you favour renewable energy in the form of wind turbines, some of them are composed of rare earth metals that are mined in appalling conditions.

So it’s very difficult to keep your investments ethically pure.  Perhaps a simpler solution is to aim to make the maximum possible gains from your investments independent of ESG issues and use the returns to fund good works.

Brian Durrant