What is an ethical investment? For that matter, what is “ethical”? For an individual, it can be very personal, but we need to use a definition which refers to generally accepted principles of right and wrong or we’ll never get anywhere! We use a definition in our Terms and Conditions as follows:

ethical means being in accordance with accepted principles of right and wrong that govern the conduct of a profession or business, in particular in relation to the environmental responsibilities of the profession or business

Terms you will hear include SRI (socially responsible investment), CSR (corporate social responsibility), ethical investment, sustainable investment, and green investments.

Investment companies and individuals can use various strategies to achieve their ethical investment goals. These are:

Positive screening – choosing only the top performing companies and funds according to the criteria

Negative screening – avoiding companies involved in certain businesses

Best-in-class – selects companies who are better than their peers, but do not necessarily meet strict criteria (this approach can bring better returns, but is probably not for the ethical purist)

Engagement – an active approach involving meeting with companies in which money is to be invested with the aim of improving their practices in the desired areas. This is often initiated at following pressure from shareholders.

Activism – a bit more aggressive than engagement! May involve activities such as individuals purchasing shares in order to attend shareholder meetings and ask questions of the board

Beware of greenwash – where companies appear to be acting green, but aren’t.