Fund Style Name: Negative Ethical funds

 

Style USP: Avoiding companies that are considered ‘unethical’

Brief description of Style

Funds that use clear negative ethical screens as part of their investment strategies.

SRI approach applied 

Negative Ethical funds apply clear, absolute and sometimes extensive negative ethical screening criteria alongside standard financial analysis.  Negative exclusions may be apparent when looking at stock selection as commonly held  sectors or companies may be absent.   Exclusions may relate to specific value sets or internationally agreed standards or norms.

These funds may also apply positive screening criteria but these will not override negative exclusions.  Traditional Ethical funds may also be subject to engagement activity, although engagement aims are likely to differ from screening policies.

SRI issues covered

Negative ethical funds normally consider a wide range of ethical, social and environmental issues.    Unlike many other SRI options however a defining feature of these funds is their emphasis on ‘ traditional, values based ethical principles or standards’.  The fund managers views of company performance on such issues influences whether or not a it is acceptable for investment.

Example issues include:

• Traditional ethical issues; such as armaments trade, pornography, alcohol production, gambling and animal welfare

• Social issues; human rights and labour standards issues including health and safety, child labour, equal opportunities

• Environmental issues; such as pollution, climate change, transport and resource management

• Governance issues; such as executive remuneration, board structure, bribery and corruption

 Variation across Style segment & associated Styles

Approaches vary. Different funds screen for different issues and the depth of company and policy research also varies. Some funds offer substantial information on ethical policies which can be helpful for investors.

The level of resources committed to these funds varies significantly. Some fund managers have significant in-house expertise; others outsource almost all ethical research. Both can be effective but often lead to different policies and investment decisions.

Impact on investment strategy

Negative Ethical funds may have relatively strict ethical strategies which can substantially impact where the fund manager is able to invest. These funds are often underweight in large caps and may avoid certain sectors entirely.

Who is this Style most likely to appeal to?

Ideal for investors who wish to avoid specific negative activities or behaviours. These funds are also appropriate for investors who wish to reduce their exposure to companies which may have significant ethical, social or environmental reputational risks. Investors should check investment policies or lists of holdings if they have strong opinions as fund managers views may differ from their own.

Associated Styles

These funds are likely to be more similar to Balanced Ethical funds than other strategies but may also have features in common with some Sustainability and Environmentally Themed funds.

Associated jargon

Most funds of this kind have the term ‘ethical’ as part of their name or use words that denote ‘ethical and social’ issues as opposed to environmental concerns. These funds are sometimes referred to as ‘dark green’.  Their approach is regarded by some as being the ‘traditional’ approach to ethical investments as they focus on ‘traditional’ ethical issues which relate to personal values.

Providers

Offered by a range of fund and product providers.

 

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