The rise of ESG Investing

I met a financial advisor for a coffee a few weeks ago. He wanted to pick my brains about ethical investing. He said he wanted to be 'more green' and wanted my advice on building ethical portfolios for clients. He seemed to think ethical investing was merely about avoiding tobacco and arms; it's moved on a lot, I said, as I rolled my eyes, questioning whether he was willing to be truly committed and informed about the world of ethical investing. I came across this great piece of investment research by Calvert Research and Management called 'The Rise of ESG Investing' which talks about the latest trends and client drivers. It also talks about financial advisors and their attitudes towards ESG. The study is US based. However, I think it translates well to the UK market too. I marked out some interesting bits and listed them below with my comments.

On Millenials

Born between 1980 and 2000, Millenials command wealth, a social conscience and power. By 2020, it is estimated they will make up 46% of the workforce. This is a generation with sway and swag, who hold social responsibility, social justice, equality and environment causes as top priorities.

Research quoted in the report states that 53% of millennials make investment decisions based on social responsibility factors, compared to 42% of Gen Xers, 41% of baby boomers and 39% of seniors. I don't see too many millennials in my advisory practise and I really enjoy seeing them when I do; but it is encouraging to see the younger generations voicing themselves so clearly.

ESG Takeaways

Advisers should incorporate basic ESG questions and filters into their initial discussions of goals and objectives with current and prospective clients and take a proactive approach to identifying needs and interests. 

I strongly agree. I don't push ESG investments as a 'right' or 'preferred' way of investing; it is not for everyone, and yet, the client has a right to make an informed decision - ESG or not. I imagine advisors enjoy offering a broader menu of options to clients and those who have worked hard to acquire expertise & conviction in ESG investing reap the benefits in attracting investors interested in responsible investing.

For many advisers, portfolio performance is a non-issue when it comes to ESG considerations. It ranks near the bottom of the reasons advisers utilize it; for non-users, ESG's limiting of investment options ranks near the top of considerations. Just 29% of advisers believe there is a positive correlation between corporate financial performance and ESG factors. While manager selection for ESG strategies may be limited compared to the broader universe of funds and managers, the menu is increasing in size. Overall, investment research broadly suggests that the performance of socially conscious funds has a "positive tilt relative to the overall universe of funds". While returns may not be a real hurdle, there is an increasing breadth of options - and potential strategies - that advisers can utilize.

Returns aren't a hurdle. True.

There are around 113 funds that meet the ESG/Ethical criteria as regulated funds for clients in the UK so yes, the universe is smaller. Also, the menu of available investment options excludes passive funds (there are a few, but they don't meet enough criteria to be included in any meaningful way) which means clients may pay a bit more for an ethical portfolio which necessarily includes actively managed funds and consequently higher fees than passive funds. However, more and more, I see a greater abundance of options including with company pensions, such as the L&G Future World fund focused on climate change, which is encouraging.

Adviser usage of ESG factors

The strongest indicator of adviser utilization of ESG factors was the level of client interest in social and environmental issues and, secondarily, the adviser's own knowledge of responsible investing as well as their performance of the importance of evaluating ESG factors for client portfolios.

I have met clients who are keen to invest ethically but then are put off by an adviser's own biases; I believe this is more to do with the advisers own level of felt competence in the area than the facts of whether ESG is an inferior strategy as an investment option or not. 56% of advisors cite client demand as the main reason to utilize ESG. Among advisors who don't use ESG investments, 58% said their clients are not interested in ESG factors, 29% said it leads to limited investment opportunities and 22% said it leads to poor or limited returns; I hear that last one most often too when I talk about it informally with advisor colleagues.

ESG factors brought up most often in client meetings

Among all ESG factors, the "E" - environmental - draws the most client interest. In our survey, 39% of advisers said that clean technology was one of the most commonly prioritised ESG criteria in client meetings, followed by climate change (35%) and emissions and waste (26%). 

An ethical investment questionnaire now has so many factors to it including pornography, human rights violations, genetic modifications, product stewardship and animal welfare.  It has definitely moved on from a simplistic negative screen of avoiding tobacco and arms companies. The survey also lists under social and governance issues the factors most frequently mentioned were human rights (22%) and corporate transparency (16%).

Knowledge stands in the way

Just 38% of responding advisers in our survey answered "Yes" to our question, "Do you feel knowledgeable when it comes to ESG investing?" Aside from client demand, advisers cite moral/ethical reasons as the secondary driver for their use of ESG.

38% is quite a large number. So, for clients who are looking to invest ethically or with ESG in mind, going to a knowledgeable advisor on ESG makes sense.

Further resources:

Ethical investing: Positive and negative screening criteria

Three myths about Ethical Investing

Sustainable tourism: A week in Morocco

Growing a Culture of Social Impact Investing in the UK

Nonviolent Communication & Corporations - Marshall Rosenberg Pt 2

Nonviolent Communication & Corporations

In a video on YouTube, calledNonviolent Communication and Corporations, Dr Marshall Rosenberg talks specifically about how the old domination structure affects how businesses function. As he passed away, this is the closest I can get to sharing his teaching; I have transcribed his words to share how he thought about this topic – radically different to our usual way of thinking and very inspiring. Part one is here; this is part two. It is long - 4,738 words and so you may wish to find a way to read it slowly, when you have more time. I use the 'send to Kindle' extension on Chrome.

Marshall: These are people that’d be killed. Actually, I'm convinced that most schoolchildren could solve the conflict very quickly, if you simply told them what the resources are and what the needs of both sides are, you see.

Paula: So it doesn't take a PhD in psychology to put this into action.

Marshall: It takes somebody with a consciousness of human needs and an ability to translate moralistic judgments into needs. That's a core part of our training - that all language that criticizes others is essentially a tragic expression of an unmet need.

Paula: Why is there such a tendency to criticize others to make ourselves look good?

Marshall: Because we've been educated for 10,000 years, according to the theologian Walter Wink, in his book The Powers That Be. We have been educated for 10,000 years to maintain domination structures in which a few people dominate many and such structures require a language of domination, a language in which people at the top who claim to be authorities know what right, know what's wrong, know who's good, who's bad. Because those judgments are necessary to determine who deserves reward and who deserves punishment. So, we have been educated not to think of our human needs; we have been educated to think in terms of moralistic judgments.

So the way to undo this... we've got to be careful that the way to undo this... is not to say we've got to get rid of this thinking. Because getting rid of something creates resistance. What we have to do is get conscious of what do we want to replace it with, that will better serve life at less cost. So, when we go about systems change in our organization, we're not out to destroy what is or to get rid of it; we are out to transform it to better serve life. When we work with people taking drugs or alcohol, we're not trying... our objective is not to get them to stop taking the drugs or the alcohol; our objectives are to find another way of meeting their needs that's more effective and less costly.

Paula: On their body.

Marshall: And to the people around them and to the society. So, our approach is never to get rid of something. That's what leads to violence... you see, if you set your objective of getting rid of something, killing it usually works.

Paula: Is that your definition of violence?

Marshall: Well, we see violence at several levels. Physical level, of course, I would call violence intentionally harming... physically harming another person. I would say psychological violence is in any way implying wrongness of another person. But we also have structural violence. By the way, we have created laws that discriminate against certain people; I would call that another form of institutional violence so I think there's these different levels of violence- they're all interrelated.

Paula: What about the institution of marriage in this society. Is there violence built into that institution?

Marshall: Yes I would say violence in this sense that…

Paula: Because these are two people that were in love they decided to get married and then later on…

Marshall: And I'm saying very often the way love is... I mentioned earlier... the way love is defined, it does violence to both people; it almost makes them a slave to the other. For example, if to be in love and to be married means that I'm responsible for the other person's happiness, now we get into this guilt game where if they're upset I'm at fault; that makes the person you're the closest with seem about as much fun to be with as a prolonged dental appointment.

Paula: I know, I agree with that part of it. You know after the honeymoon is over they say but what about before the honeymoon even starts? Somebody... a man says, I'm going to take care of you and protect you and you know, he brings you flowers and roses and you just tend to have this knee-jerk reaction that he's making you happy.

Marshall: Yes. He is probably meeting some of your needs by that... by the flower to meet a need to be cared for. That part is beautiful - when people do things to contribute to each other's needs being fulfilled. The problem is with the training we get about what it means to be a man and what it means to be a woman.  You see in a domination culture; women are trained that 'a loving woman has no needs'; she sacrifices her needs for her family, for her man. So the loving wife is basically this martyr, who has no needs herself but to do for others.

A man gets a similar training but a little different wrinkle and in the male case, it's 'brave men have no needs'. They are willing to even sacrifice their life in the service of the King. Notice in both cases, human needs are not nice; they're weak, dependent, selfish, needy, weak, sick. So you've got to maintain a domination culture, you've got to educate people to be disconnected from their needs and to learn all these roles of this is what a man should do and what a woman should do -  which is a sure way to make sure that you can't really enjoy each other.

Paula: So you.. thing is... to get the stigma out of need. If we can accept that needs are good, maybe we could say a saint has a great need to be one with God?

Marshall: I would say that not only a saint but if it's a need as we define needs, all human beings have it. All human beings have the same needs.

Paula: All human beings.

Marshall: All human beings have the same needs. The differences are in the strategies for meeting needs you see. All human beings have a need for nourishment, physical nourishment for their bodies -food. But of course, what is the strategy for meeting that? In some countries, they eat quite different foods to meet that need. So strategies differ.. from you know... culture to culture. But all human beings have the same needs. But we don't get educated to express these needs because people do not make good slaves when they're in touch with their needs. So if you want to educate a vast majority of the public to be nice, dead people so that they'll fit into corporate structures and do life-alienated work, you've got to educate them not to be in touch with needs, you've got to educate them to work for rewards in the form of approval or money. Or to be afraid of punishment... that you'll get fired. So you don't educate them to meet needs; to be educated in terms of needs is a revolutionary act.

Man in the background: What does the ideal society look like? Describe that...

Marshall: First of all, the ideal society... no one would do things for rewards or to avoid punishment because you wouldn't have rewards or punishment. You see, you would have life-serving missions for organisations; they would see that their objectives are to enrich the needs, enrich the lives of people. So, second characteristic... I've already mentioned - power-with tactics would be used, not power-over tactics. Power-over tactics are punishment, reward, guilt, shame, duty, obligation. Power-with requires communication so that people can see how their actions are in fact nourishing life and so it's gratitude... sincere gratitude that people work for... not approval, you see. But to see that how their actions are enriching life. And third, in the kind of what I call life-serving organisations - the role of authority is radically different than in the institutions we’re familiar with. Authority in life-serving organisation is a servant; they serve the workers, they don't control them... they serve them. If they have expertise, it is to serve the workers so that the workers can serve the life-serving mission. So, these are a few characteristics of a life-serving organization whether that be a family a school corporation or a government.

Paula: Do you think as a person practices nonviolent communication their needs change?

Marshall: Now you see, our needs never change. Our needs are always the same... the same as all other people in the world... but we might change as different ways of meeting the needs but the needs don't change.

Paula: What is that basically? The needs?

Marshall: The needs is life seeking fulfilment within each one of us. Trees have needs, bees have needs, humans have needs, all living phenomena have needs. It's life seeking expression.

Paula: So they're seeking greater happiness.

Marshall: They're seeking fulfilment. Fulfilment. The happiness comes as a result of the fulfilment. We are not after the happiness. Life is not to live happily ever after. It is to laugh all our laughter and cry all our tears. Life at times requires sadness....needs don't get met. Life and death go together you see, life is a process that's ever-changing.

Paula:When needs don't get met, you'd say that is... that the tears and the beckoning a new chapter?

Marshall: I would say that the pain is nature's way of mobilizing us to better meet our needs, the sorrow says a need of mine isn't getting met- it mobilizes me to do something about it.

Paula: And so we want to tune into that... we want to live that to make our life…

Marshall: We want to tune in to our sorrow, we want to tune into our joy, we want to celebrate when our needs do get met and we want to mourn when they don't get met.

Man in the Background: (Unclear)

Marshall: Well, certainly we wouldn't have consumerism mixed up as a human need. I think we would have factories that would create life-serving things like clothes and other things that serve life. I think they would be much more local. I don't think they would be controlled by international forces.

Paula: Why do people like to have things? What is consumerism?

Marshall: They're educated... if you read the book by Michael Lerner, Spirit Matters, I think he does a good job in that book of explaining what he calls misrepresentation of needs. Our domination cultures want to educate people so that they get needs mixed up. For example, they educate you to think you need approval. You see, we don't need approval. What we...

Paula: And then you get the big car and the diamonds...

Marshall: Exactly. They think we need to get this approval from others by how we can consume... what we own... but that need for approval is really not a human need. If we really wipe away the false education, here's what it is. We all have a need to contribute to life but how do I know whether I've contributed to your life unless I receive some sincere gratitude. So if you tell me how a meal I cooked really enriched your life, it's not that I did it for the gratitude but the gratitude gives me confirmation that my need to contribute to your life was met. So that gets all distorted in a domination culture and we educate people to think that they need the approval.

Paula: And so the cars and the things become symbols of approval being given?

Marshall: Oh yes, yes... especially if you are raised in Detroit, Michigan like I was. When I went to my tenth high school reunion, the first question everybody asked everybody was what car are you driving? You see that that was the determiner of how you've made it in life... what size car you drive, but that's a distortion; that's a distortion of this need to contribute to life with this thinking that we need approval.

Paula: Do you think there's any basic difference between the needs of men and women and that that if there is a basic difference that can be the quote-unquote eternal conflict?

Marshall: Well, as I said, I think all human beings have the same needs. I think men and women have the same needs. Certainly, cultures teach men and women different ways of getting needs met and they also teach them, it's okay to have some needs if you're a man but not others. Maybe, women get different training but both men and women have the same needs.

Paula: I'm thinking of beings who talk about enlightenment and liberation saying that any qualification that you might have is not who you are... you're obviously not the person defined by the car you drive or even the person defined by the body that you have- as you learned when you were young people were not liking you for the color of your skin or religion. And yet it can go even farther that we have no qualification whatsoever including being a man or woman and a very enlightened person that I met, Sean Klein, said that as long as there's a man and as long as there's a woman there can never be understanding.

Marshall: Ask me whether I'm a man or a woman.

Paula: Are you a man or a woman?

Marshall: Some of the above, none of the above, all of the above and more of course.

Paula: sounds like you're describing sainthood.

Marshall: No, I'm just really describing what I think exists. I don't think any label using the verb 'to be' dehumanizes people. Anytime you think of yourself, what you are, or what somebody else, is I think you lose the beauty and the awe and the wonder of this living phenomena. So one of the things when we work with parents, we show them that the worst thing you can do is see these younger people you're living with as a 'child'; the very label 'child' keeps you from seeing the full humanness of this person.

Paula: Erm...But I still feel that's a quality of a liberated human being - sainthood. You always say, you don't have to be a saint to practice nonviolent communication but I see when I read about it and watch the results, you show people how easy it is to achieve virtue that has been considered exclusive for the very elite.

Marshall: But I see whole cultures that live this way, then they are all saints by that definition. Read Ruth Benedict's research - there's whole tribes... cultures in the world... they don't teach their people to think of what people are, they don't teach people to label and categorize; such tribes of our cultures have almost no violence.

Paula: Do they have enough spiritual power to protect themselves because you talk about the protective use of force also in your teaching...  will these societies survive?

Marshall: That's one of the tragedies... that they don't have the weapons I think... they have the spirituality that contributes to survival but other things don't they don't have.

Paula: But that shouldn't be a problem though, with your work, you don't use weapons.

Marshall: No but if people do.. that you're surrounded by... unless you can learn some ways of dealing with them, then you may not survive. So it's one of the hardest challenges we have when we’re called upon by such cultures to help them. For example, I was asked to work with some people from a tribe in Malaysia... my translator before the day began, we had a very interesting conversation about language;  because he said to me you know Marshall if you use the verb 'to be' today that would be very hard for me to translate, because we don't have it in our language- and I thought about that for a moment.

Paula: It is the first verb we learn to conjugate when learn.

Marshall: You would hear 'a good boy', 'bad boy', 'that's a right answer',' that's a wrong answer', so for me, to think for a moment, I said to him, "Well, how can I communicate today... if I can't label and categorize people? What if I want to say to somebody, 'you're selfish'," and he said, "Marshall, we just don't think that way, that'll be a real challenge for me" and I said, "Well, what would you do then, if I did call somebody selfish? He said in our language, "Marshall I would translate it this way. I would say Marshall says, he sees you taking care of your own needs, but not the needs of others. He would like you to take care of their needs too. "

And I sat there, thinking to myself, this is exactly what I teach people... that's exactly the language of Nonviolent Communication. So, then the sad question, is why was I asked to work with them, if they do naturally what I teach people around the world to do. The sad reason for that was this tribe had been living peacefully in the middle of the jungle for several generations, but they were living in amongst trees that have great value in the outside world. So, logging interest were destroying their habitats and their one senator for sixty thousand people in the Malaysian government... heard of work we were doing in Malaysia and he asked if I would work with their people... to show them how they might communicate with these people around them, that are coming in now, with this different way of thinking... they think they have a right to this because they paid money for it, they think they have a right to use weapons to clear them off the land... so, it's a real challenge to support these people in knowing how to survive, in the face of that kind of oppression.

Paula: That they're protecting the ecosystem that we need... the rainforests... I know you're not talking about the rainforest, but I would imagine the same would be true of tribes living in the rainforests and we need that air.

Marshall: So, there's all kinds of reasons for us to help such people learn how to protect themselves and the environment in the face of these forces that are trying to take it away from them.

Paula: So, it becomes imperative that we figure out what consumerism is... that it's not really a need.

Marshall: Yes, now consumerism is not a need. We need food, we need shelter but we don't need cars; but they can be a helpful strategy... if we can find a way to meet the need for mobility which the cars meet... if we can find and we have technology which could give us this mobility without destroying the environment and we need to get about developing transportation that can meet our need for mobility without destroying the planet.

Paula: Do you have any visions or even fantasies because of the cultures that you've seen to bring them to this culture... knowledge of what they're doing?

Marshall: Well, yes I have studied with Benedict and Margaret Mead and other anthropologists to see how cultures have existed in the past and yet, met their needs though especially the ones that at least from anthropological evidence seem not have had much violence. I've tried to learn from them, what we can bring and learn in our culture.

Paula: I mean, that we should have more shows about these people's lives going in documentaries maybe...

Marshall: Oh, I think we need to learn from them, yes very much so. I think we need to learn... from people like William Ury and his book The Third Side who's gone back and studied such cultures for thousands of years and seen, he's seen cultures that didn't have violence... you need to see... have him and others like him share their knowledge; and show us what we can learn from those cultures to bring us back to the state where people can get their needs met without violence.

Paula: Can consumerism be even something like fishing for compliments? Like you were saying when a little girl is judged, 'oh, you're such a sweet little girl' that that's actually a disservice to her.

Marshall: Compliments and praise I think are equally violent, as negative statements like insults; because, notice both of them are using the same language form- they are both using categories. We're putting people in a category when we say, 'you're a stupid idiot' or when we say 'you're a brilliant person', we're dehumanizing the person in both of them. So rather than giving a compliment or praise, our training shows that people will get much more out of your sincere gratitude if that's what you're trying to do... is give a sincere gratitude... don't tell people what they are... tell people specifically what they've done that enriches your life, express how you feel about that and what needs were met... you'll see that people learn more from that, than they do from praise or compliments. But, you see praise and compliments are given for the motive of reward, to manipulate.

Paula: And approval

Marshall: Approval- the same way it can be used, for the purpose of manipulation

Man in the Background: (unclear)

Marshall: The gratitude... for example, let's say, that I'm a teacher and the student has just written a paper. If I say 'good paper, that's a very good paper, you're a good writer', that has almost zero information value in terms of learning. But if I say, the number of facts that you quoted in this paragraph, I felt very delighted with that, because it really fulfilled my need for greater clarity about this subject, I've given the student much clear idea of how I benefited by this performance. That's what we call sincere gratitude... it's based on needs that were met. That's much more honest, and it's much more supportive of the learning of the student, for example.

Paula: And they'll have greater fulfilment in their life purpose.

Marshall: They'll see how their behavior has contributed to somebody's well-being. In this case, by putting this number of facts in the report, it contributed to somebody's clarity about the subject matter. That's far more valuable information than the judgment 'good paper'.

Paula: So if you say 'good paper' you're trying to keep the person up in their head and they live life waiting for one compliment after another and trying to avoid the blame and then…

Marshall: And you perpetuate a domination culture, because you have educated them that the main job is to do what authority thinks is right.

Paula: Right, but I'm also thinking the next step too, we can get kind of addicted to the compliments and then, that approval and then, that need for the cars and all of the things that are destroying the environment.

Marshall: Exactly and it's the purpose of schools- is to educate students to be nice, dead people.

Paula: Right

Marshall: Because that's what industry requires. Nice, dead people who will do work without questioning whether it serves life. They'll do it just to get the boss's approval. I work with managers who tell me that they have just been in other trainings that taught them to make praise and compliments to employees daily, showing that the production goes up if you give praise and compliments. Teachers have been told the same thing - praise and compliments will increase students’ performance. I tell both teachers and managers that I've seen that research and it does work for a very short time - until people see the manipulation in it and then it no longer increases production, but what's worse, it destroys the beauty of gratitude. Now you can't even be sure, when somebody is giving some gratitude whether it's sincere or whether the person is using it as a device to get you to do what they want.

Paula: Right, you pick up on the manipulation and you resent it.

Marshall: And this is what our schools do. Because it's their job to train people to work within structures in which they'll work for praise, approval, salaries and they won't look at whether what they're doing is polluting the environment, whether it is destroying work experiences and other cultures, exploiting other cultures... no, people have been educated to go in and put in your eight hours a day, working for the salary and for the approval.

Paula: Is nonviolent education important to teach in schools refugee camps or corporations or all of them?

Marshall: Well, we call them life-serving educational schools and we have right now, about a thousand of them in Israel; we have some in Palestine. I've written a book called life-serving education in which I outline what these schools are like and how different they are from the usual public schools. We have a few in the United States, we have some in Italy and some in Serbia, Sweden; so, yes the education is quite different.

First of all, in the life-serving education... is that the teachers and the students work as partners. The teachers don't tell students what they have to do, they assess the students to identify their own objectives. Students don't work for grades, they don't work for approval, having picked objectives that they see will enrich their lives, they work to serve their lives.

We structure the school so that it's not a competitive arena. It's an interdependent community, so that all of the students contribute to one another's well-being, learning... if a student has just learned something and some other student wants to learn it, instead of competing on the test where the one who's learned it is going to get a higher grade, the one who has already learned it, turns around and teaches the other so that everybody is both a teacher and a student.

Paula: Wow, I'd like to ask you a few questions about enlightened people. And I realize, even to use the word enlightened by how you define it is in itself violent. So let's say some people I’ve run across, who've had almost a quantum shift, even in their physiology and their whole attitude in the way they look at life... at least I feel, that's serving my need better to relate to you, the excitement I have about individuals who are developing.

Marshall: I like that way of describing you're telling me. that there are certain people by the way they think, communicate, stand, sit, whatever, do it in a way... that you are pleased with, you’re excited about, it meets some basic needs of yours. So you're not saying they're enlightened, you're describing what goes on in you, when you're with those people.

Paula: Right and I thank you for helping me with that clarity. In any case, one individuals’ name.. her name is Byron Katie... and she felt at about forty three years old,t she got some clarity is how she said... and then she found that there was a natural invitation to help others in her life. And she like you, doesn't shy away from difficult situations; but rather feels the real the need of hers to go in and share what she has. She said that, we would all stop hating if we knew how. And she says hate is nothing more than peace, than pure innocence... and that innocence can be painful. She goes on, 'wouldn't you stop if you knew how', and she talks about investigating our thinking and she says this investigation leads to love. She says open to love... the worst that could happen is love and in your work, I see this a lot. The end result of doing these steps- observation instead of evaluation, being in touch with feelings understanding our needs, making requests for our life to be better ends in in real love although there's a knee-jerk reaction against it that somehow by being vulnerable we may be wimps or run over by people we find that that's actually.

A guide to investing in ethical funds

By Cleona Lira, 5th December, 2014

As an investor, your values and beliefs are important as a guiding principle on where to invest your money. Ethical funds are sometimes called ‘socially responsible investments’ used in place of ‘green' or 'ethical’, just different words for the same thing.

Ayn Rand, author of Atlas Shrugged, defender of capitalism would argue that capitalism rules, no matter what. However, not all investors wish to invest in profits gained unethically. Although, one has to remember that this is an investment, it is important that a positive return is made for the risk taken. Ethical investments are very well represented in the top quartile of performance tables.

Lisa Stonestreet, Programme Director at UKSIF (UK Sustainable Investment and Finance Association) says "Traditionally, investing ethically meant avoiding investing in companies involved in tobacco, defence, alcohol or weapons. Socially responsible investing has come a long way in recent years. It now includes investments  in companies that are successfully helping to solve environmental and social problems - water conservation, living wage issues and sustainable supply chain policies".

One of the biggest myths about investing in ethical funds is that they under perform; linked to this is the fact that people may have a narrow definition of ethical funds.  Whilst in the past, it has been mainly about "negatively screened funds" i.e avoiding tobacco companies, investing ethically now addresses broader issues - proactively finding solutions to modern problems such as aging populations, climate change or resource scarcity. So, a water fund may not necessarily be marketed as an ethical fund but it has strong sustainability criteria embedded.

With the strength of social media, companies are having to react to the force of public opinion. Western clothing retailers faced tough questions over the link between cheap fashion and worker safety in the aftermath of the Rana Plaza disaster, which killed a large number of factory workers in Bangladesh.  A business may have up to 1,000 suppliers - the businesses reputation also depends on the practices of its suppliers - its supply chain.

If more investors collectively requested better business practices, management teams would naturally shift their focus. When customers and shareholders align, powerful changes can happen. Businesses stand to benefit greatly too; some of the benefits for businesses to run in an ethical manner are public acceptance, customer loyalty, investor confidence and avoiding damaging lawsuits. Recently, I followed with great interest a blogger called Foodbabe that corralled shoppers away from spending money on sandwiches at Subway unless they removed a plastic chemical used in their bread.

So, how does one work out ethical priorities? It is important to work out what you feel most passionately about. What experiences do you hold important in defining how you would like to invest? It could be that you lost a family member to excessive cigarette smoking. Or it could be the issues of children's rights or child education is important - perhaps you would not like to invest in a company that is careless about its supply chain and uses children to work in sweat shops. Or it could be that you feel strongly about the environment and recycling. Or pornography. An IFA would typically hand out an ethical questionnaire to help you with this process where you could add positive criteria that you want as well as negative criteria that you do not want.

It is worth noting that the stricter the ethical criteria, the more exclusions and the more volatile the portfolio could also be.

The Ethical Investment Association (EIA) is an association of financial advisers from around the UK( of which I am a member too) dedicated to the promotion of green and ethical investment. If you need financial advice on investing ethically, you could find an IFA near you by visiting their site.

Related resources:

Three myths about ethical investing