The evolution of ethical investing

Staci West 28/09/2023 in Sustainable investing

In this video, we hear from two professionals in the field of ESG (Environmental, Social, and Governance) investing, who provide comprehensive insights into this world.

Kate Hewitt, ESG and Impact specialist at Montanaro Asset Management explains how ethical investing has evolved over the years, including the difference between ethical and sustainable investing, while Liontrust’s Mike Appleby gives his thoughts on why ethical investing is still important today.

How has ethical investing evolved?

Kate Hewitt (KH): So, ethical investment is probably the traditional form of responsible investment that springs to most people’s minds, and that’s probably because it’s the oldest. So, it was championed by religious organisations in the last century, so, the Quakers and the Methodists; they decided that they couldn’t or didn’t want to invest their Church funds into areas of the economy that contradicted their religious values. And that has sort of stayed broadly the same, but it’s been adopted by a broader number of people and organisations.

So, ethical investing has traditionally been the exclusion of areas of the economy that go against certain moral values. The way we’ve seen that evolve is into a broader definition of responsible investment. So, it goes beyond now just the negative screening and the avoiding of things that you don’t like, to take root in other areas, so positive selection, sustainability, impact; how do you use investment as a force for good as well as just a tool to avoid areas that you disapprove of?

What’s the difference between ethical and sustainable investing?

KH: So, ethical, as I mentioned, is sort of more negative-focused. It’s to do with exclusion, whereas sustainability is inclusion, if you like. You are looking for companies that signal that they are looking to contribute to sustainable development; they’re not just not doing bad things, they’re positively contributing to good things.

Why is ethical investing still important today?

Mike Appleby: I think ethical investing is important because at least you know that you’ve got those red lines where you won’t be invested in certain areas of the market. And that’s the key bit about ethical investing.

But I would point out it’s very possible to have a fund that is both sustainable investment – so it’s looking for those solution providers to invest in, that will grow and as will your money by investing in them. But you can also have negative exclusions [so] you can have ethical criteria, as well as sustainable. So, you can have both those things in the same fund, and that’s quite common as well.

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