The Difference Between Ethical and Green Funds

The Shard, London UK

While any limitation on the kinds of equities or funds to be invested in may see sub-optimal levels of performance, some will wish to restrict were they put their money based upon ethical beliefs or a desire to contribute towards positive forms of investment.  For those who have such objectives, both green funds and ethical funds may offer an ideal way to combine investment with morality.  However the key question is what is the difference between the two options?

What Are Ethical Funds?

Ethical funds may be seen as those funds which operate according to an ethical code of conduct as specified by the fund managers.  Typical ethical codes of conduct may see funds not placing money in companies which invest in tobacco, arms production or other ethical issues such as high environmental impact industries.  While the code of conduct will be specific to each fund, overall the approach may be seen as one based upon a policy of exclusion of “unethical” investments rather than one seeking to support a given cause or provide exposure to investment in a specific sustainable industry.

What Are Green Funds?

Green funds on the other hand seek to invest specifically in enterprises which as seen as having a positive environmental effect.  While the composition of such funds may vary, typical investments will include equities and bonds associated with companies involved in renewable energy, green transport and waste management.  For some, an investment in green funds may be seen as a way of investing in a way which leads to a positive social development.  For others, green funds may simply be a way of gaining an exposure to industries which are often seen as representing a rapid growth sector.

While there is no clear cut lines between what constitutes an ethical fund and a green fund, generally one may consider that ethical funds will on the whole embrace a wide range of investments so long as the companies involved do not breach the code of conduct of the fund.  On the other hand, green funds may generally be seen as funds which specifically seek to invest in companies which make a positive contribution to a wider range of stakeholders than the investor alone.

As such, before selecting a green or ethical fund it is important to consider carefully your own specific investment objectives and match these to a fund with relevant code of conduct and investment processes and practises.