Green and Ethical Investment Approaches: Some examples
 

Broadly speaking there are four approaches to green and ethical investment which different funds can combine in different ways. Any or all approaches may be right for you.

1. Negative Screening - The most commonly recognised form of ethical / SRI, negative screening involves avoiding companies that do not meet the ethical standards by which the SRI fund is run.

A number of ethical funds, for example, will not invest in tobacco production.

2. Positive Screening seeks to invest in those companies with a commitment to responsible business practices, products and/or services.

This commitment can come in a number of forms, such as the adoption of more sustainable environmental principles or a strong programme of community involvement and ethical supply chain management in developing nations. Funds might invest in areas like environmental technologies.

3. Dialogue and Engagement approaches are applied by some fund managers, to encourage more responsible business standards, when there is a strong business case for change.

This may not alter stock selection and mainly takes the form of dialogue between major investors and companies, and may extend to voting practices. This approach can be done separately to or in combination with screening. Fund managers will engage on areas such as inappropriate remuneration and climate change. This approach is also known as active shareholding.

4. Integration refers to the explicit inclusion by asset managers of ethical, social and governance risk into traditional financial analysis.

Remember to discuss all the options with your financial adviser.