Choosing to invest only in enterprises which act ethically, meaning companies having "good" managements and "ethical" products and investment funds that avoid "immoral" targets.
Socially responsible investing began as socially conscious investing in the early 1970s. It achieved recognition through the successful boycotting of the African Krugerrand. The idea of "single issue funds" which did not invest in, say, South African tobacco or alcohol, was popularized in the USA. The first lay fund in the UK was launched by Friends Provident in 1983 in deference to the high principles of its Quaker roots. Most funds agree on several criteria. They do not like companies that make and sell arms, tobacco and alcohol, that test cosmetics on animals, publish pornography, destroy rain forests, disrupt native communities, or cause pollution. Some disapprove of companies that make political donations, lend money to dictatorships, produce shoddy goods or mistreat their staff. The exclusion rules may be absolute or relative – say "any company that gains more than 10% of its revenue from tobacco, drink and gambling. Some funds apply their criteria negatively, such as a vegetarian fund completely avoiding companies involve in meat production and processing. The opposite approach looks exclusively at positive criteria – one fund supports companies who are doing the most to clean up environmental pollution and damage.
In 1994, ethical funds represented under 1% of UK investment funds, but growing rapidly. Many ethical funds are happy with mere five or six of the top 100 companies, favoured by most ordinary institutional investors, leaving a preponderance of smaller companies in their portfolios. Despite restricting their range of investments, the ethical sector has comfortably out-performed both the UK income and UK growth funds in the first half of the 1990s.
Ethical investment is the support of businesses not primarily to make profits but to behave responsibly in the community.
The range of ethical considerations is often bewilderingly wide and sometimes arbitrary, which raises questions about just how valuable such "ethical" judgements are. The "ethics" espoused by some funds seem to be a somewhat incoherent collection of the latest fashionable attitudes, in which rain forests and kindness to animals play a leading role. Such funds are really little more than a new angle for marketing more investment vehicles to a well meaning but somewhat naive public. One UK bank advertising itself not to lend to oppressive regimes does virtually no international lending.