Investors want to see more ethical funds available

Demand is growing for ethical investing, with one-quarter of independent financial advisers (IFAs) reporting an increase in their clients’ demands for this type of investment; however, according to research carried out by Heartwood Investment Management, only 43% of financial advisers are currently satisfied with the variety of ethical investment options available.


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The study only involved a small number of 80 intermediaries in the UK and may therefore not be fully representative; however, it would still appear to be indicative of the trend towards an ethical and more responsible type of investing.

The data from the study showed that 81% of the respondents would choose to invest in a portfolio that is globally diversified, while just one in ten would prefer a single-strategy ethical fund. It was also revealed that 62% of intermediaries would rather buy into a diversified ethical scheme that implements both negative and positive screening criteria.

Screening tools

Ethical funds have traditionally used a process termed negative screening. This process excludes companies that manufacture and produce tobacco, alcohol, porn, gambling, weapons and nuclear power.

Conversely, positive screening concentrates on investing in companies that are making a positive social, governance and environmental contribution, such as by demonstrating equality records, good human rights and labour rights.

While negative screening is normally product based, positive screening tends to be conduct based. It is estimated that there are currently around 90 collective investments that are using avoidance inclusion or a blend of the two.

The part of the market that tends to capture people’s interest and imagination is positive investments. Avoiding activities that have a detrimental impact on life, such as smoking, are avoided by negative screening.

Web-based software is used by financial services to run efficiently, helping them to manage investment risks and build better businesses. Companies such as provide back office systems for IFAs and have revolutionised the investment industry.

Ethical funds

Investors are increasingly looking for financial portfolios that are managed in alignment with their ethical concerns and values. The Heartwood Investment Management research clearly identified a growing requirement for ethical funds amongst IFAs and their discerning clients.

The research also noted that a sizable majority of financial advisers prefer a diversified investment proposal that combines a positive ethical approach with conventional negative screening.