What are the different styles of ethical investment?
Ethical (or socially responsible) investing can take many forms, but the most established ways of investing ethically are:
- negative screening - looks at the universe of possible investments and decides to exclude investment in certain areas
- positive screening - actively searches the universe of possible investments to find businesses whose practices are socially or environmentally beneficial.
- corporate engagement - aims to change company practices by engaging in a dialogue with the company invested in. The ethical fund manager can use tools such as extraordinary general meetings to call attention to issues of concern.
- best of sector - invests in all sectors and industries, selecting companies with the best record in the sector. A limitation of this approach is that there are no exclusions applied so investment may end up being made in the most sustainable tobacco producer or in the 'best' casino.
- combination investment - while not common, there are some funds that apply a combination of the first three methods in their selection criteria.
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