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JULIA:
Hello my name is Julia, and I'm here to talk to Graham Newitt from Legal & General about ethical investments. Welcome Graham.
GRAHAM:
Hello.
JULIA:
People are becoming more and more interested in ethical issues. Why do you think that is?
GRAHAM:
Well as a subject, this covers a whole host of reasons and issues that are on people's minds. Topical themes at the moment are all around the environment, carbon footprints, endangered species, human rights, and what to do about not supporting industries like tobacco and gambling. And I think people are beginning to understand more about these issues through media, and particularly the information that is available on the internet. And this has been highlighted more recently by some natural disasters such as Hurricane Katrina, which has been attributed to global warming. So, although ethical investment has been around since the 80s, it was seen for a long time as a niche option, but interest has grown and there’s now something like 60 funds available.
JULIA:
What is an Ethical Fund?
GRAHAM:
It's a $64,000 question isn't it? There's no black and white definition. To an extent, it remains a subjective and personal decision for the investor. But companies tend to use one of three methods to select an ethical company for its fund. The first of these is called screening, and that's either about screening companies who are involved in non ethical areas, or positively screening to search for companies that support ethical activities. Then there's something called preference. And that's where the fund manager rates companies according to their responsible investment policy. Now this is a broader measure but it does allow the fund managers to take account of financial as well as ethical performance. And finally, there’s something called engagement. And that's where the fund managers use their influence with companies to positively change their ethical position. Again, this allows for more discretion in the funds that are used to take account of the performance of the individual firms.
JULIA:
So does investing ethically make a difference?
GRAHAM:
I think it's like most things, everything we do individually will make some small difference, and the collective impact can be significant and challenge the way that companies act, and make them develop more responsibly. At Legal & General, we work hard to make investments more socially responsible. We own over 4% of the UK market on behalf of our customers and we have the opportunity to influence companies for the better because of this.