Ethical funds are mutual funds which work on some underlying principles. A typical example of an ethical fund, though on religious grounds, is an Islamic Mutual Fund.
Typically, an ethical fund works on a set rule of principles. These principles are some way or the other influenced or decided by the investors’ preferences - the investors who invest in ethical funds.
Say for e.g. – I am an environmentalist and I believe that my investments should be made only with companies which take care of the environment, along with looking after their business. So I may NOT like to invest in XYZ Tree Cutting Inc., as its business of cutting trees and making a profit of it does not go well with my principle or ethics. I may not invest in a company which is making fur caps and coats, as I may not like their idea of butchering animals to manufacture products and make a business out of it.
If I am vegetarian, then I may not invest in a company which is primarily in a non-vegetarian food processing business. Again investments based upon ethics.
Ethical funds attempt to tap this segment of investors. They lay their set principles, based upon which they select the companies to invest and ultimately, the investors decide whether to invest in these ethical mutual funds or not. Not only that, even if an investment is made, and then a feedback may be taken from the investors, whether they like to change the underlying ethics or principles and based upon which the portfolio of the mutual fund is churned.
An example can be taken from a recent news item (http://www.guardian.co.uk/business/2008/feb/06/standardlife.ethicalbusiness): The fund manager Standard Life Investment has recently declared that its ethical funds would no longer invest in airline stocks. The move was in response to a survey of investors in its ethical funds, which it said showed 30% wanted a complete exclusion of airline stocks. The company asked investors whether they wanted to invest in airlines seeking to reduce their impact on the environment or drop airline stocks altogether. Standard Life Investments manages £588.5m over its ethical fund range.
| It is learnt that investors do not like the high emission levels due to airlines, which may be a hazard to the environment. The aviation industry claims that emissions are relatively low compared with other sectors and that efforts are being made to improve performance. | Table of Contents |
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