The arguments around ethical investing invite some discussion

Ethical investing/ESG/SRI look set to further revolutionise the investment world.

What started out as a niche interest ten or fifteen years ago — considered to be a highly eccentric position — is now normalised for the Millennial generation who comprise the majority of new investors.

Subsequently the changes to the investment world are immense, with funds falling over themselves to offer ethical options.

It has also created a new industry of ESG analysts and sustainability experts, who offer a variety of different ranking and analyst reports focusing on a range of issues from employee rights to climate ratings that assess the impact on a carbon footprint basis.

However investors in many ethical funds may be surprised when scrolling the “Top 10” holdings of many retail funds.

The key issue is often what constitutes an ethical fund. For many funds this means simply avoiding certain areas of the economy considered contentious or damaging to humanity as a whole.

Examples of such areas can include the arms industry, the oil and gas sector, tobacco and gambling.

A second type of fund invests in assets considered to be of benefit to society and that help to deliver positive returns as well as a net benefit to humanity.

Sectors of the second type would include healthcare, housing for disadvantaged and vulnerable people and the clean energy sector.

The impressive returns of many SRI and ESG funds over the past year shows the second strategy is paying off, with many of the most successful funds of the last twelve months including those that invest in such areas.

A question of ethics is related to changing norms of what modern investors expect.

No longer are they willing to focus only on the bottom line and ignore the wider and social impacts. They expect at the very least that the most socially harmful or irresponsible companies will be entirely ignored by investment funds.

It’s highly likely that this trend will continue in the direction of travel, as greater number of Millennials and Generation Z investors active in the market.

A possible area of growth includes vegan funds, which exclude those funds that invest in animal agriculture and testing, although at the moment “active” vegan funds are considered to be difficult to manage on a publicly-listed basis given the dearth of vegan-only businesses.

“Clean” aka slaughter free meat is something likely to have a disruptive impact on the meat industry, with meat grown in this way providing the opportunity to deliver returns and an end to the suffering of billions of animals.