Ethical funds: turning principles into practice

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The Independent Culture
More than 90 per cent of savers would like to be given the option of ethically invested funds, alongside more traditional unit and investment trusts. But, as Nic Cicutti warns, the first thing to do is decide just where you stand on the issues of the day.

Just because you want to invest ethically doesn't mean it's easy to decide where your money should go. There are more than 30 ethical unit and investment trusts on the market and the number is growing, each with a slightly different set of parameters on how they allocate funds at their disposal.

They base their investment strategies on both positive and negative criteria. The positive mean actively searching out companies which do something considered "good", such as supplying the basic necessities of life, including bread, water and clothing. Negative criteria mean avoiding companies involved in "bad" activities, such as gambling or the arms trade.

The starting point, therefore, is to decide what issues are important to you, then choose a fund which best approximates your values. The problem here is that the commitment of companies towards some social goal can vary, not only in terms of whether or not they support a particular policy, but the degree to which they do so may also be open to question.

For example, the TSB Environmental Investor Fund is a "green fund" and, among many other considerations, will back companies which achieve a reduction in fuel bills by efficient energy conservation.

In this its public policy is greener than many other funds. Yet the TSB fund will only avoid investing in UK companies which have contracts with the Ministry of Defence of more than pounds 250m over three years. By contrast, Friends Provident's Stewardship trust has a pounds 5m limit over three years on MoD contracts.

For some people, even this pounds 5m triennial military contract cap may be too much, although it is the best available and only six other firms match that record. In effect, what this reveals of ethical investment is that, as with so many other things in life, finally deciding where your money will go may well be a compromise decision, based on what is close to your requirements rather than exactly what you wanted.

The next problem is how to obtain information about individual companies. Regrettably, no newspapers, not even The Independent, publish the detailed comparisons necessary for people to make up their minds. This is because the permutations involved in each fund would make any comparison table fundamentally flawed.

But this doesn't mean there aren't ways of obtaining this information. The Ethical Investment Research Service (Eiris) is a registered charity set up to help organisations and individuals who want to invest their savings according to their ethical principles.

In the past 15 years, Eiris has grown substantially. It "screens" 1,500 UK companies, plus a further 450 major European ones, according to more than 170 ethical criteria. Its services are contracted out to many pension funds, particularly within the local government sector. A large proportion of ethical fund management companies also use Eiris to supply them with the information they need to make their investment decisions.

Late last year, Eiris produced Money & Ethics, an invaluable collection of fund statistics and other information on a range of issues ethical investors may need.

This includes identifying ethical concerns, commercial considerations and even what funds have to say about themselves. It also covers many areas not always considered by savers, including endowment policies, pensions, retirement top-up plans (called Additional Voluntary Contribution schemes, or AVCs) and even life insurance.

If you are preparing to research the ethical investment market, Money & Ethics will come in handy. Another publication that will assist is the free The Independent Guide to Ethical Finances. While not as detailed in some areas as the Eiris publication, this newspaper's guide, sponsored by Friends Provident, still provides a thorough grounding in the subject. It also deals with related topics, including credit cards, bank accounts and mortgages. And it provides a list of useful names and addresses to contact for more information.

Both guides give anyone with a social conscience a new set of tools to use when making financial decisions: information and choice. It is for you to use them well.

'Money & Ethics', price pounds 15 (p&p included), is available from Eiris at 504 Bondway Business Centre, 71 Bondway, London SW8 1SQ. Or call 0171- 735 1351. 'The Independent Guide to Ethical Finances', sponsored by Friends Provident, was written by Nic Cicutti, the personal finance editor of this newspaper. It is available free by calling 0800 214487. Or fill in the FREEPOST coupon on this page.