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Investing with a conscience

Ben Johnson, Collectives Analyst at Charles Stanley explores the ethical side of investment, including the UN's sustainable development goals and the rise of 'impact' funds which seek to actively target investment that directly work towards these goals.

For a growing number of investors, generating good returns from their portfolios is no longer enough. Increasingly, shareholders want to know that the companies in which they invest have a positive impact on the world, rather than maximising profits with no consideration of the impact of their activities. Many have linked this trend with the rise of the “Millennial” generation and, whilst this isn’t untrue, our belief is that this is a structural shift that is here to stay.

Fortunately for these ethically-minded investors, the field of “responsible” or “ethical” investment funds is a growing one. Such investments have actually been around a while but, historically, funds simply excluded sectors with controversial business practices (think oil, tobacco, weapons etc.) and this was sufficient to classify yourself as ethical. However, we’re now seeing a more pro-active approach to ethical investing.

A key milestone was reached in September 2015, when 193 countries agreed to seventeen goals referred to as the Sustainable Development Goals (SDGs) as part of the United Nations 2030 Agenda for Sustainable Development. These seventeen goals are wide ranging, from goals around eliminating poverty and providing clean water, to action on climate change and improving the state of the world’s oceans.

What we’re now seeing is funds going much further. Rather than just focusing on investments to avoid, they’re actively seeking out companies that make a tangible positive contribution through the product or service they provide and, in the process, addressing one or more of these UN Sustainable Development Goals. Funds that invest like this are known as “impact” funds, and this is where we anticipate a real growth in demand in the coming years.

The war on plastic is one theme that has really captured the public’s imagination. David Attenborough’s Blue Planet II has had a huge impact on public awareness of this issue, not just in the UK but all across the world.

One product of note that invests on this theme is Impax Environmental Markets investment trust, which has exposure to a number of companies that are providing solutions to these vital issues. It is important to note that the management team don’t just hunt for the most exciting technologies; the companies they invest in must be viable at a commercial level, and capable of creating value for shareholders.

We recognise that ethical preferences can vary hugely from person to person depending on an individual’s beliefs and preference. The Charles Stanley Collectives research team spends a lot of time researching and analysing a wide range of ethical funds, from those that have a broad approach to those that seek to address one specific global challenge and are more thematic in nature. Ethical investments can form a core of an investor’s portfolio, or can be used to supplement existing holdings as a means of taking exposure to highly dynamic companies, many of which are leaders in their field and possess unique intellectual property. There is no single right way to invest ethically and our investment managers have a broad toolkit from which to choose.

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