Myth 3: It’s hard to invest ethically

It’s hard to invest ethically

In my role leading on our responsible investment approach at Quilter Cheviot, I often get questions about how we can incorporate people’s ethical concerns into portfolios. People are usually concerned that their ethics and investing won’t mix, and that investing will mean compromising their principles.

The key to dealing with these issues is to ensure we understand what people mean by ethical investing. As bespoke investment managers, we are well placed to invest in line with people’s ethical considerations, and have integrated the idea of responsible investment into our investment process for a number of years now.

I don’t want to invest in certain companies

This typically applies when someone has a particular opinion or religious belief that prohibits them from investing in something. This is fairly easy to deal with through a negative screening approach, where you screen out areas you don’t want to invest in. For example, if you object to the tobacco industry, you will naturally filter out tobacco companies like British American Tobacco.

You do need to think about how widely you want to set your exclusion criteria though – will you also avoid companies that sell cigarettes? This will add significantly to the number of companies which you cannot invest in and may lead to unintended consequences.

I want to invest responsibly and act on environment, social and governance issues

Responsible investment is already part of our investment process at Quilter Cheviot. We regularly engage with companies on issues and vote against management teams where we feel that they have not addressed environmental, social or governance issues. We report on our voting and engagement activity on a quarterly basis and this can be found on our website. 

I want to invest my money in companies making an active difference to the world

There are people who want to go a step further, and use their investments to fund companies that positively impact the world. To help achieve this, we have our Climate Assets Funds, which aim to invest in companies promoting solutions to issues like climate change, food supply and demand imbalances, and water scarcity.

Does ethical investing affect my returns?

There is no easy answer to this question – the impact of ethical investing ultimately depends on what exactly your criteria are. There is some big picture data which suggests you can invest ethically without lowering your returns, but I would be very careful of this because it treats ethical investing with a very broad brush. Everyone has their own ideas about what is ethical and as each portfolio is constructed to reflect a particular client’s concerns, we take into account the impact of the screen.

Ethical considerations can affect the look and feel of your portfolio, including the balance between different company sectors, so you need to think about how to maintain a sensible investment balance. That involves making sure you are well diversified, not over-exposed to any one type of market risk, and that what you are invested in will still deliver on your financial objectives.

If you would like to know more about our approach to ethical investing, I’d recommend you download our Ethical Investment brochure. Alternatively, you can contact one of our investment managers to discuss your requirements.