There are very few ‘ethical’ companies but some companies are more popular with ethical investors than others.
Most people who invest ethically do so by putting their money into pooled funds (that buy shares in dozens of different companies). But some prefer the idea of hand-picking individual companies that they will invest in. You have to be comfortable with the higher level of risk and, if you’re investing ethically, make sure that the company has values are in line with your ethics and that it makes financial sense to invest in it.
Doing your own research
You cannot buy or sell shares without using a stockbroker, but you can use an execution-only broker - who will carry out the trades that you ask them to - and do your own research into the company you invest in. If you're not sure about how your ethical values will translate into a long-term investment decision, read the article entitled What's important to you?, elsewhere in this section.
SAVVY TIP There are lots of execution-only brokers around. You'll normally pay the least if you trade online, but it's worth looking at the level of service you get as well as the price. Brokers to consider include The Share Centre, which is unusual in that it does offer telephone-based advice about investments, Selftrade and TD Waterhouse, as well as high street banks.
If you want to choose the companies you invest in, there is a range of sources of information.
• Company report and accounts: these will give you an idea of the company’s recent trading history and what its future prospects are. They will show you whether the company has increased its debt levels, sold part of its business (which may artificially inflate profits) and whether its turnover is rising or falling.
SAVVY TIP: Try to look at the last two or three years’ reports and accounts so you can find out more about financial trends and the company's approach to corporate governance.
• Information from regulators. Depending on the type of company you’re considering, it may be overseen by one or more regulators. For example, mobile phone companies are regulated by OFCOM, financial companies by the FSA (the Financial Services Authority), food producers by the Food Standards Agency (also, rather confusingly, shortened to the FSA).
SAVVY TIP: Regulators normally go public with information about companies that have been in serious breach of laws or regulations.
• Websites: it’s easy to find information on the internet, what’s more difficult is evaluating how useful it is. Try and do some research into the pedigree of unfamiliar websites so you know what their agenda might be.
• Press and Media: Newspapers and financial magazines (on and offline) are a good source of news-based information. They won’t necessarily tell you about the long-term prospects for the company, but they may alert you to a wide range of issues and they’ll give you information that the company may not want you to find out. Trade newspapers and journals can sometimes provide a different perspective from the consumer press.
SAVVY TIP: There’s no doubt that companies have realised that appearing green and/or responsible can be good for their business. Although many have made genuine changes, there’s also a lot of ‘greenwash’. It’s easy for a company to boast about the number of plastic cups it’s recycling, but it’s not very meaningful if the core business doesn’t stand up to scrutiny.
So for example:
• A bank may have a strong involvement in its local community, but have pulled the plug on thousands of small businesses through its aggressive policies
• A DIY chain may source its timber in a sustainable way, but swathe everything it sells in layers of packaging
• A high street retailer may proclaim its ethical values, but rely on workers in Asia who are paid a pittance.
Focus on profits
It's important to remember that you’re investing your money. That means you should buy into a company that you believe is able to produce a return, and buy it at the right price.
• If the business model isn’t viable or you’re being asked to pay too much for the shares, you probably won’t make money and you may lose some or all of it.
• If the company’s valuation, performance and focus has changed, so should your investment position. Choosing a company to invest in is important, but so is knowing when to sell. No matter how much the share price rises by, you haven’t made any money until you’ve sold them at a profit.
What's important to you when it comes to ethical investing?
Investing in shares; starting your own investment club
Capital gains tax and your investments
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