• Consumers & Advisers
• National Ethical Investment Week
• More for Consumers
• Tools for Advisers
• Course for Financial Advisers
• Introduction
• Step 1
• Step 2
• Step 3
• Step 4
• Step 5
• Appendices
• Test
• Prize Draw Winners
• Ethical Fact Finds
• Past Projects

Click on the links below to go to the relevant section:

The aim of this course is for you to learn:

• What green and ethical investment consists of. It is also known as 'responsible investment', 'sustainable investment' and 'socially responsible investment'. It covers investments that use some social, ethical and/or environmental investment criteria.
  
  
• Why you as a financial adviser should consider offering advice about green and ethical investment.
  
  
• How to identify clients who may want to consider green and ethical investment by asking all clients an appropriate initial question in the fact finding process.
  
  
• How to understand clients' motivations, concerns and goals through effective additional fact finding.
  
  
• The approaches and terminology used for green and ethical investment.
  
  
• The issues involved in investment performance of green and ethical investment.
  
  
• How to match client needs and wishes with investment solutions that make good financial sense.
  
  
• Where to find further information about green and ethical investment.

The course is structured around the five key steps of advising on green and ethical investment laid out in the UKSIF Toolkit 'Investing Responsibly: A Toolkit for Financial Advisers'. The five learning steps that you will follow correspond to the five step advice process:

The five step advice process:

ß

ß

ß

ß

Green and ethical investment covers a wide range of investments that use some social, environmental or ethical (SEE) investment criteria.

In the investment world, the expressions 'ethical investment', 'environmental investment', 'green investment', 'responsible investment' and 'socially responsible investment' (SRI) are often used interchangeably. Occupational pension funds and other institutional investors often prefer the term 'responsible investment'. The retail market tends to use 'ethical investment' or 'green investment'.

In this online course, we will use the term 'green and ethical investment' to cover all kinds of investment that use SEE criteria. We will also use the term 'investing responsibly' to describe the use of green and ethical investment.

Religious belief can sometimes be a motivation for choosing green and ethical investments. This course covers the use of SEE criteria. Several of these have their roots or origins in religious beliefs. However, the course does not cover advising on specialist Islamic finance products.

In general, the main type of green and ethical investments described and considered in the learning material are pooled equity and bond funds. These are typically open-ended investment companies (OEICs), unit trusts, investment trusts or life or pension funds, although some other types of green and ethical investments are also covered.

There are several different approaches to green and ethical investment for portfolios or funds, and these are set out in greater detail in Step 3. Briefly, the main ways to invest responsibly boil down to the following:

• 'Positive screening' or 'support' involves investing in companies that have a responsible approach to business practices, products or services. For example, some funds focus on investment in those companies that have the best practice in their industries, while others focus on particular themes, such as environmental technologies.

• 'Negative screening' or 'avoidance' means not investing in companies that do not meet the ethical criteria that the fund sets. This is the oldest and best known approach to responsible investment.

• 'Engagement' uses the active influence of shareholders to support and encourage more responsible behaviour by businesses. Fund managers mainly use dialogue with the management of the companies in which they invest on issues of concern, and may also use their voting powers as well. This approach could extend to a fund manager's entire equity portfolio, and may include life, pension or other collective investments.

Many funds combine these approaches.

Green and ethical investment has grown rapidly in recent decades. Its roots were in religious movements dating back to Victorian times, when the key issues included temperance and the conditions of employment in work places.

At the beginning of the 1900s, the Methodist Church began investing in the stock market, and consciously avoided companies that were involved in alcohol and gambling. As the twentieth century progressed, more churches, charities and individuals started to use ethical criteria when they were making their investment choices.

Recent social and economic developments

In the last twenty-five years, the rise of green and ethical investment has also been closely linked to major changes in society, especially in such key social movements as the environment, human rights and animal welfare. Important economic trends have helped to drive green and ethical investment forward. These include:

• The increasing financial independence of women and young people.

• The growth of employment in the voluntary sector.

• Globalisation and the increasing power of multinationals.

• The diminishing power of democratic governments.

• A massive increase in share ownership by unit trusts, pension funds and insurance companies.

Landmarks in the development of green and ethical investment in the UK included:

• Initiatives for a UK ethical unit trust, which were started in the 1970s and were finally realised in 1984 with the launch of the Friends Provident Stewardship fund.

• The Ethical Investment Research Service (EIRIS), which was set up in the previous year by ethical investment enthusiasts who wanted a common source of research on company activities.

• The formation of the UK Social Investment Forum (UKSIF) in 1991, which brought together key figures across the full range of responsible investment to co-operate in sharing knowledge and advancing the agenda.

In the UK, nearly half of all people asked now say that they are interested in green and ethical investment. (1)

Green and ethical investing is not an isolated UK phenomenon. In many parts of the world (for example, the US), the market for green and ethical investment is arguably even more developed in some respects than it is in UK. In the US, a fund was first launched in the 1970s for investors who were opposed to companies involved in the Vietnam war.

Worldwide, both institutional and individual investors are increasingly adopting green and ethical investment approaches.

Driven by the pressure for sustainable or environmentally-conscious development, there have been several United Nations initiatives to support and encourage responsible investment.

In terms of the funds under management and the total number of funds, green and ethical investment funds still constitute a relatively small part of the total market, although this is growing rapidly. There were nearly 90 UK retail green and ethical investment funds in January 2007, according to EIRIS. (6)

Most investors who invest responsibly only do so for a proportion of their funds. One investor survey found that just over half (51%) invest a quarter or less in green and ethical investments (7), while another found that over half held some other investments The reasons for this may be to achieve diversification and also the wish to retain existing investments.

In terms of value, green and ethical screened funds currently represent over 1.5% of total retail funds. (8) Over 4% of retail funds are screened. (9) Over £480bn in assets are subject to engagement undertaken by UK fund managers on behalf of their clients. (10)

Footnotes

1        72 Point Ltd for F&C Asset Management Plc, December 2006.