The importance of engaging with ethical investing

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Ethical funds once garnered little concern amongst investors. Find out why it’s now become crucial for the financial industry to engage with socially responsible investing.

In previous years, ethical funds, generally speaking, weren’t a priority to investors. High returns were the main focus and there tended to be little attention surrounding where exactly one’s funds were invested. Today, however, we’re living in an age where society is much more socially and environmentally conscious.

Therefore, it’s hardly surprising that ethical investing is now on the increase with approximately
£17 billion invested in ethical funds in the UK. With this in mind, it’s now vital that financial advisers are able to engage with the needs and attitudes of the investors of today. Here we examine why ethical investing can no longer be ignored.

Jonathan Yousafzai, head of ethical investment at Thesis Asset Management said, advisers could lose clients if they fail to advise on environmental, social and governance related funds and investment products.’ However, it’s not simply society as a whole that has become more socially and environmentally aware but, in particular, the younger generation. This is perhaps one of the key reasons for financial advisers to become familiar with ethical investing. Ian McKenna, director at the Finance and Technology Research Centre argues that ‘any firm that isn't constantly taking on new and younger clients is, perhaps subconsciously, in the process of closing down.’

Millennial money will eventually fuel the future of financial firms. It’s, therefore, imperative that advisers are able to relate to the needs of young people in order to aid business sustainability.     

It’s often advised that those looking to invest in ethical funds bear in mind the concept of impact over performance. Although it isn’t appropriate to say whether ethical funds will necessarily perform better or worse than mainstream funds, and some may be of the view that you should be looking for a positive impact and not prioritise fund performance or risk management, group head of research at AFH, Leonid Nji, believes there’s no need to compromise the two. “Over the last few years, market activity has shown that ESG global indices have outperformed their global market equivalents. When investing ethically, we need to focus on positive social impact, but fund performance should complement this – they can’t be looked at in isolation. At AFH, we tend to select investments that will not create a detriment to social initiatives but can still bring returns.”

If you’re considering ethical investing, speaking to a financial adviser could help ensure that you invest in the most appropriate portfolio of ethical funds, in line with your attitude to risk.   

Please contact us before proceeding with any course of action. The suitability of an investment is based upon individual circumstances.

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