Welcome to the latest edition of 'Thinking Ahead'. This month we take a look at ethical investment, the concept of investing in assets that reflect specific moral principles. There are a wealth of terms and acronyms used in the industry, such as ESG (environmental, social and governance) or SRI (socially responsible investing). The issue is made more complex because of course one person’s ethical values are not necessarily those embraced by everyone else, so screening criteria will vary; there will be those who don’t want their money going into fossil fuels, for example, while others might wish to shun nuclear power.
Ethical investment is nothing new – just consider the Quaker Cadbury brothers building the village of Bournville at the end of the 1800s so that their workforce could live somewhere healthy and secure. However, in today’s complex financial world, investors need well-structured liquid assets to put their funds into – very few will build a model village with client funds!
An ideal solution is an ETF whose underlying investments reflect the principles the investor is targeting. This is certainly a burgeoning sector, with over 100 UCITS-compliant ETFs already trading on European exchanges. It’s also expanding at a breakneck pace – Commerzbank executed some 28,000 transactions linked to SRIs in 2018, double the previous year’s total.
Only time will tell if the sector continues to grow at such an impressive rate, but it’s clear that ethical investment is growing in popularity. The drive is coming both from bottom-up grassroots sources, such as activist voting at general meetings, and straight from the top, with the United Nations establishing the Principles for Responsible Investing back in 2005.
We hope you will find this month’s edition of ‘Thinking Ahead’ will give you some fresh insight into the topic. Please send your thoughts and suggestions to me at ThinkingAhead@commerzbank.com.