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Ethical Investing: What is it? And who’s doing it?

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That is why the Boring Money team decided to dig a little deeper in our latest industry report, launched in October. Our question was this: Is ethical investing a fad? Or the future?

Given the infancy of the sector, it’s difficult to come down definitively on one side or the other just yet. But certainly the market is growing, with £17 billion of ethical funds currently under management, according to the Investment Association – up from £14 billion last year.

Who’s doing it?

Our research suggests that women are leading the charge when it comes to interest – and actual investment – in this area. More than twice as many women (32% compared with just 14% of men) said it is very or extremely important to them, and robo advisers that offer ethical portfolios tell us that a higher proportion of women choose their ethical portfolios than their standard offerings.

The future of the sector looks bright, with the robo advisers also telling us that customers of the ethical portfolios are likely to be younger – a finding that tallied with age-related interest levels in our survey.

What actually is it?

Drilling into the detail, though, is where the sector becomes more complex. Not only is there much confusion about what actually counts as (or is even understood by) ‘ethical’ among consumers, there is also a legitimate concern that one person’s ethics are not always in line with another’s.

According to our study of 2,055 Brits, only 36% of the public have heard of ethical investing – and there is understandable confusion when it comes to defining the practicalities of how ethical investing actually works.

The majority of respondents understood the term to mean blacklisting – i.e. excluding certain types of companies or industries from a portfolio. Unsurprisingly, arms, tobacco, gambling and pornography are the areas consumers say they most want to avoid.

‘Impact investing’ – where money is actively funnelled towards certain projects to support positive change – was a less recognised part of the ethical investing process. But when people were introduced to the idea, it was a more popular approach than blacklisting, with survey respondents naming healthcare, green energy and sustainable agriculture as the areas where they would most like to see their money put to positive use.

Which companies offer it?

There are a growing number of outfits that are offering ethical funds and filters within their selection processes. Big players such as LGIM, Vanguard and Barclays Smart Investor, as well as newer players such as Wealthify, Wealthsimple, PensionBee and Moola all offer ethical options.

However, many reservations evidently remain when it comes to investors actually putting their money where their mouths are. Our YouGov survey respondents, as well as information additionally gathered from 1,112 readers of The Times, expressed scepticism that ethical funds could generate the same returns that ‘normal’ funds could.

What next?

So – it seems that although the sector is clearly showing growing interest and engagement, there is still a job to be done on properly explaining it to would-be investors. What’s more, it seems people need reassurance that their money will still be working hard for them – as well as the causes close to their hearts.

So back to the original question: is ethical investing a fad, or the future? It certainly doesn’t feel like the former. But we’re a long way from the latter just yet!

 

What do you think? Would you like to blacklist certain types of company from your investment baskets? Or would you rather take the impact investing route, and actively choose to do good with your money? Have you already done one of these with your current portfolio?

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