By Rob Whorrod, Director of Acqius
In August 2023, a report[1] was published, claiming that sustainable finance lies at the heart of achieving the UK’s ambitious climate and environmental goals. Fleur Thomas, His Majesty’s Ambassador to the Grand Duchy of Luxembourg, states, “Sustainable finance is not a passing fad; it is a fundamental shift in how financial markets operate. Investors in Luxembourg and the UK increasingly recognise the need to integrate sustainability into investment decision-making.”
Interest in and commitment to ethical investment has greatly increased over the last few decades. The term environmental, social, and governance (ESG), for example, has developed and expanded widely since it was first mentioned in the United Nations ‘Who Cares Wins’ report in 2004.
But what is ethical investment? What are the different types of ethical investment funds and what are the advantages and disadvantages?
What is ethical investment?
Ethical investing not only enhances financial returns but also fosters positive social and environmental impact, driving meaningful change in the world.
Ethical investment means investing with thought to the world around you as well as to your financial return. This could cover many environmental, social, moral and religious factors, ranging from climate change and animal testing to tobacco, arms, gambling and workers’ rights.
No longer a niche market, this is a way of investing which is set to grow and which has captured the imagination of younger investors. According to a 2022 University of Stamford report[2], 70% of investors aged between 18 and 41 said they were very concerned about environmental issues.
But this makes sense because, increasingly, people want all aspects of their lives to align with their values; why would this not include investing?
Ethical investing is a proactive approach to finding companies that are making a difference in ways that matter to the investor.
What are ethical investment funds?
There are several types of ethical investments, here they are explained:
Socially Responsible Investing (SRI)
This means investing in companies to avoid controversial industries such as tobacco, alcohol, gambling and firearms.
Environmental, Social and Governance (ESG)
As previously mentioned ESG investments consider the environmental and social impacts of the company and focuses on sustainability and open, honest business practices.
Impact Investing
This type of investing combines social or environmental benefits with financial returns. This delivers returns for you and society in general.
Faith-based Investing
This means investing based on religious persuasion and excluding companies that don’t match a certain belief system.
The advantages and disadvantages
As with all types of investing, there are some advantages and disadvantages to ethical investing.
Advantages:
- Feeling empowered that you are contributing to change and are not compromising your ethics and values
- Driving the ethical investment movement forward so more people invest this way and companies feel that they must follow suit.
Disadvantages:
- There are fewer investment options to choose at the moment
- You may pay more in fees because of the time needed to research these companies or because they are often smaller
Conclusion
Ethical investing is being taken seriously and is here to stay. In fact, from 31 May 2024, the Financial Conduct Authority (FCA) ‘anti-greenwashing’ rule will ban funds from using language like ‘sustainable’, ‘green’, or ‘responsible’ without the means to justify it.
At Acqius, we firmly believe in the principles of ethical investing because they align with our values and contribute to a sustainable future. By integrating ESG factors into investment decisions, one can promote responsible business practices, mitigate risks, and generate long-term value for stakeholders.
We are committed to promoting investment choices that uphold integrity, transparency, and sustainability, ultimately creating a better world for current and future generations.
[1] Deloitte “The state of play of sustainable finance in Luxembourg and the United Kingdom” – https://assets.publishing.service.gov.uk/media/65b272a926a40f000d7ac194/2024_01_SustFinanceDev-LU-UK_FINAL-2.pdf
