Style Name: Negative Ethical funds

Investment funds which focus on applying negative ethical avoidance criteria when deciding where they can or can not invest

Brief description of Style

Negative Ethical funds use clear, sometimes strict and extensive, negative ‘ethical’ screens as their primary SRI strategy.  They may avoid a significant number of areas on ethical grounds (eg armaments, tobacco, gambling) although some focus on avoiding a small number of business activities.

SRI approach applied

Negative Ethical funds apply clear, absolute and sometimes (but not always) extensive negative ethical screening criteria alongside standard financial analysis. Negative exclusions may be apparent when looking at stock selection.  Exclusions may relate to specific value sets or internationally agreed standards or norms.

These funds may also have positive screening criteria or responsible ownership strategies but these will not override negative exclusions when deciding where to invest.

SRI issues covered

Negative Ethical funds tend to consider a wide range of issues which are used to help decide whether or not a company should be acceptable as an investment. A defining feature of these funds is that they include ‘ethical’ or ‘values/principles based’ issues as well as social and environmental issues.

Example issues include:

• ‘Traditional’ ethical issues; such as armaments trade, tobacco, pornography, alcohol production, gambling and animal welfare

• Social issues; human rights and labour standards issues including health and safety, child labour, equal opportunities

• Environmental issues; such as pollution, climate change, transport and resource management

• Governance issues; such as executive remuneration, board structure, bribery and corruption

Variation across Style segment & associated Styles

Approaches vary. Different funds screen for different issues and the depth of company and policy research also varies. Some funds offer substantial information on ethical policies which can be helpful for investors.

The level of resources committed to these funds varies significantly. Some fund managers have significant in-house expertise; others outsource almost all ethical research. Both can be effective – but can lead to different policies and investment decisions.

Impact on investment strategy

Of all the many SRI strategies and variations, Negative Ethical funds are those which most clearly avoid sectors (and companies) as a result of their ethical policies. Although there is much variation these funds are commonly underweight in larger companies.

Who is this Style most likely to appeal to?

Ideal for investors who wish to focus on avoiding specific negative activities or behaviours. Investors should check investment policies or lists of holdings if they have strong opinions,  as strategies vary.

Within this group there are two main strategies – those which avoid in line with a wide range of criteria (as shown above) and (although far less numerous) those which only avoid one or two areas.  These will appeal to different investors.

Associated Styles

These funds are more similar to Balanced Ethical funds than other strategies (as both have a core aim of considering ‘ethical/values based’ issues).   However there are also a number of Sustainability and Environmentally Themed funds which also have extensive avoidance criteria or strategies that lead them to avoid common areas of concern.  (These can be identified through the ‘Policy’ and ‘Features’ filters on Fund EcoMarket).

Associated jargon

These funds are commonly regarded as ‘ethical’ however their strategies normally include environmental and social criteria also. These funds are sometimes referred to as ‘dark green’ which is somewhat misleading (as they do not focus entirely on environmental issues.)

Providers

Offered by a range of established and newer fund and product providers.