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Here Come the Ethical Robos (Ethbos?!)

By Mike Narouei, Content Producer at Boring Money

15 Aug, 2018

Have you cut back on your plastic use since David Attenborough showed us pictures of turtles chewing on plastic bags? Or contemplated your carbon footprint since you’ve seen pictures of the ice shelves melting into the sea?

Chances are, it’s a yes to both of those things. And more. But have you contemplated making the ethical choices when it comes to investments?

According to Boring Money research, it’s an area that more and more people are interested in. We found that 74% of investors are “interested” or “potentially interested” in ethical or socially responsible investing – with 55% of under 45s saying they would consider ethical investments.

So why are we talking about this?

Today, Wealthify has announced the launch of a range of ethical portfolios. It joins the growing ranks of UK robo-advisers (including Moola, PensionBee and Wealthsimple) which offer ethical investment options. Investors will be able to access the new ethical portfolios with as little as £1.

It should be noted that the cost of the portfolios will be slightly higher than Wealthify’s standard portfolios due to the inclusion of actively managed funds *. (From 1.12% a year including fund charges and Wealthify’s account fees, vs fees from 1% all-in for the standard portfolios.) But the fact that these types of investments are becoming so readily available says much about the direction of travel in the investment world.

Ethical is big and trendy news – and Wealthify are unlikely to be the last company to jump on the bandwagon. Indeed, big guns in the asset management world are already are already making some serious noise in this space. LGIM recently launched a huge advertising campaign (created by M&C Saatchi, no less) for its Girl fund, which encourages people to “invest in the things they care about” – in this case, a fund which invests disproportionately in companies where women are well represented at all levels.

The bad news is…

However, there is some bad news. Which is that we need to brace ourselves for more jargon. Ethical investing is not liked by some, who suggest that it is in fact based around a personal moral code – and that one person’s ethical is not the same as another person’s ethical.

ESG, as these investments are often called, stands for Environmental, Social and Governance criteria. It’s a term which picks up on the fact that the environment is people’s number one concern, with social issues also at the forefront of many minds. Governance – which is perhaps the trickier element to wrap your head around – could be around issues such as how workers are treated and whether minimum wages are paid and decent working conditions offered, for example.

And there’s another school of thought (aka piece of jargon) which is “Impact investing”. The focus here is less about negative exclusions and more about change by influence. So you can either punish a big bad oil company by not investing in its shares. Or you could seek to change it by owning 10% of its shares and stamping your foot until they agree to invest more in clean energy research, for example.

It's a complex area. BUT when you think that the cigarette giant Phillip Morris makes up 0.53% of America’s S&P 500 and that the FTSE 100 comprises a whopping 15.43% of Shell and BP – it’s an area which we think will get more attention as investors start to see that they can not just invest in the world – but help to change the world too??

* Active funds are those where you pay an Economics whizz to sort the wheat from the chaff. Sometimes they get it right, sometimes they don’t. Passive funds just literally buy every share in an index so a FTSE 100 tracker just buys the largest 100 shares in the UK whether anyone thinks they are great or duff. Consequently they are cheaper. But by definition they will always be average. There’s no right or wrong choice and experts argue the toss at great boring length!