Exclusions prohibit certain investments from a fund or portfolio. For us these are client-driven at the portfolio level, and at a fund level these are set within the fund’s objectives. Ethical or values-based investing is often associated with exclusions, an approach that incorporates an investor’s moral principles, values or religious beliefs by screening out investments with particular features. These may be applied on a variety of issues.
If we think about the difference between ethical and ESG integration - ethical investing is a values-driven approach to investing, focused on excluding assets that do not match the values of the investor, effectively looking at the impact the assets have on the world around them. ESG integration, on the other hand, considers the impact that an investee company’s environmental, social and governance practices might have on the future financial prospects of the investee company, how the company is managing those factors and how they are priced into the investment.
A significant number of the charities we work with have an ethical policy, and we are well versed in integrating ethical policies into our investment process. To complement our investment managers’ knowledge in this area we employ an independent specialist firm (Ethical Screening) to review the securities researched by our analysts and advise which ones should be excluded given their exposure to sectors or activities which clients want to avoid.
The key to a successful policy is applying it across all the activities of an organisation not just the investments.
