The funds trying to do no evil

It is hard to think of an area that divides opinion more strongly than Socially Responsible Investing (SRI). Those who believe in it think that companies that follow these principles will outperform and by actively engaging with those that don’t they can change the world for the better, whereas sceptics dismiss it as nothing more than emotive advertising. There is also the more practical problem of finding a fund that reflects your own personal point of view, which makes it less black and white and more like 50 shades of grey (but without the erotica).

The first ethical funds in the UK were created in 1984 when Friends Life launched its Stewardship range. Many other providers have since followed their example and it is thought that there are now around 100 of these products available, yet it remains a niche area accounting for £10.7bn or 1% of total assets under management according to the Investment Association.

Traditionally these funds used a form of negative screening to eliminate undesirable businesses from their investible universe. The problem with this approach is that it can knock out large areas of the market, which is why some firms have developed a ‘best-in-class’ strategy that enables them to invest in the most socially responsible companies even if they are operating in unethical industries.

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