There are certain types of businesses that are unacceptable to some of our charity and private clients – for example some cancer charities choose not to invest in the tobacco industry, while some faith based clients may have concerns about bio-ethics and the use of stem-cells. These issues can be excluded from portfolios although investors should be aware of the shortcomings:
- Some ethical screens can exclude a wide variety of stocks/sectors from a portfolio which may constitute a meaningful percentage of the equity index and thus potentially affect investment performance;
- The remaining acceptable stocks can subsequently form disproportionately large positions within a portfolio;
- By excluding stocks clients are unable to use their shareholder power to influence a company’s management to improve its corporate behaviour;
- Portfolios using exclusions are mostly run on a segregated basis and thus have higher costs than unit trusts or pooled funds.
We have a list of 11 different ethical screens that can be applied to UK segregated equity portfolios. We prefer the flexibility of a menu of screens for clients to choose from rather than a single ethical policy contained within a pooled fund. For our larger clients we can create a bespoke ethical screen to meet their requirements.
Our 11 screens are: Tobacco, Armaments, Alcohol, Gambling, Pornography, Animal Testing (non-medical), Nuclear, Intensive Farming, Environmental, GM, Human Rights. Further details can be found in our policy document (pdf).