Our ethical investment process

B Lab’ is a non-profit network transforming the global economy to benefit all people, communities and the planet. Certified B Corporations, or ‘B Corps’, are companies verified by B Lab to meet high standards of social and environmental performance, transparency and accountability. This is a tough certification to acquire as you need to demonstrate that these values are properly embedded throughout your organisation.

A small number of investment providers have obtained B Corp status. This alone is a key indicator that they are good businesses to work with and accordingly we try to use them where viable.

As it happens, Good Green Money has been awarded ‘Pending B Corp’ status and is aiming to fulfil full B Corp status some time in 2023. This will be a day that we will be very proud of!

At Good Green Money we commit to gifting 2% of annual revenue to good causes. How much better would life be if every business did something similar? Most investment providers make no such commitment – and that’s fine, they are under no obligation to do so – but for those that do we look to support and promote them whenever we can.

Most, but not all, ethical funds use some level of exclusion within their investment mandate. Where they do, this has to have a meaningful depth and not just be a cursory set of minimal exclusions put in place merely to allow them to label themselves as an ‘ESG Fund’. For example, we would typically shun a fund that excludes just ‘thermal coal and oil sands’ rather than the wider definition of excluding all fossil fuel companies.

All ethical funds publish the parameters that they invest by, often setting out certain exclusions, as well as details of other particular specialisms or positive themes that they focus on, where applicable. The standard of these can vary greatly, from the most meaningful and thoughtful of mandates, to those that are minimalistic, scant in effectiveness, and to be honest, verging on greenwashing. Before recommending an investment fund we need to be satisfied that a provider’s mandate is up to a satisfactory standard.

Discussing and understanding your ethical preferences forms a key part of our advice process. When you join us, and from time to time as an existing client, we’ll run through our detailed Ethical Preference Questionnaire which serves to both formally record your preferences as well as prompt discussion in all the key areas.

As the interest in ethical investment has grown so have the number of investment providers offering ethical funds. However, when considering an investment provider using a wider lens than just the ethical fund(s) it manages, if it shows dubious traits we will avoid it. For example if it’s frequently subject to fines for poor practice, we won’t recommend them, regardless of how ‘good’ their specific fund is in isolation as we feel it would be hypocritical to do so.

We invest most clients’ money in a selection of carefully filtered, ethical investment funds. There are charges associated with these funds, and part of our selection process is to exclude the most expensive ones regardless of their ethical credentials, as we tend to find that there are equally as good alternative but cheaper funds available, and accordingly we don’t see the point of clients paying needless extra charges for nothing. If and when such funds lower their charges we are always open to re-considering them and may well start recommending them once they become cheap enough to make this viable.

Part of our proprietary ethical advice process is to categorise you as a ‘light green’, ‘mid green’ or a ‘dark green’ investor. We label this our ‘How green are you?’ process as it has a ring to it, although it does cover your approach to social issues as well as environmental ones. Doing this helps us add a level of nuance to how we invest for you which you are unlikely to see from most other advice firms. We’ll tell you more when we meet.

The more serious ethical investment providers are very good at publishing lots of material on their websites detailing their endeavours. This may be an impact report that includes details such as their engagement activity, the carbon foot prints of their various funds and example case studies of the businesses they’ve invested in, but may also include more detailed reports on specific topics such as nuclear energy or human rights.

Where there is little evidence of such information being published it is natural to assume that they are not putting in as much effort as you would hope when it comes to building their funds and using them as a force for good. These reports also make for interesting reading and we often share what they have to say with clients.

Many businesses in numerous sectors rely on independent boards to provide them with objective, unfettered opinion on what they are doing and how they could improve. The investment world is no different. Wherever there is evidence of independent boards made up of a mix of different experienced professionals from a variety of backgrounds holding an ethical investment provider to account, it allows us one extra layer of assurance that they will make good decisions.

For all the literature and analysis in the world, sometimes a real feeling for the credence of an investment fund cannot really be gleaned until you actually meet the fund manager and members of their team, or at least see them in action presenting at events. Although this isn’t a provision of us investing in a particular fund, where we are able to meet and engage with fund managers we always find it a useful exercise and certainly learn something from it.

The MSCI is one of the world’s major fund ratings agencies. Among other things, they label investment funds with an ‘ESG Rating’ from ‘CCC’ (the worst) to ‘AAA’ (the best). We focus on recommending funds with a rating score of at least an A, but ideally rated AAA wherever possible.

Most ethical investment funds are well diversified across a spread of different areas and types of underlying business for good reason. However, for the right type of client, typically those with more of an investment risk appetite, we can sometimes accommodate for a small amount of investment in niche, specialist funds, such as those that purely focus on the likes of clean energy or sustainable timber.

These form a core part of our assessment process. There are numerous third party ratings businesses operating in the UK who provide a lot of research, analysis and commentary on ethical investment funds. Due to the pragmatic nature of this business, it is understandable that on occasion the opinions of one will differ from the opinions of another. Hence, at Good Green Money we don’t rely on using research from just one specialist (such as the MSCI ESG ratings specifically mentioned above), but at present consider the combined wisdom of no less than four different specialist rating firms.

Ethical investment providers of all sizes employ specialists to research, analyse and report on potential and current holdings within their funds. Large is not necessarily always better as some of the smaller providers attract very skilled and knowledgeable professionals that do a great job, but where larger firms do come into their own is that they can split out dedicated roles where an employee may do something very specific. For example, larger firms can afford to employ someone like a dedicated ‘Engagement Manager’ who, as the title suggests, spends all of their time engaging with the invested businesses. This can add some real clout to the way that providers can influence those businesses as it allows for clarity and dedication, as well as less wriggle room for the invested business as they know the Engagement Manager will always be there asking questions.

Beyond those mentioned elsewhere in this section, there are a whole plethora of potential responsible investment commitments that an investment provider can make. Each and every one takes time and effort to commit to, and by signing up not only does it obligate the provider to adhere to them, but in turn the subscription fees and support that they offer helps to further the positive aims of each of the initiatives too. As you would imagine, evidence of such commitments is warmly welcomed by Good Green Money. Examples of such commitments include the likes of FAIRR (animal welfare), 30% Club (women on boards), Climate 100+ (climate pledges), UN PRI (Principles of Responsible Investment), CDP (environmental disclosure) and GIIN (impact investing promotion).

The Sustainable Finance Disclosure Regulation (SFDR) is a Eurosif initiative introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around sustainability claims made by financial market participants. As part of this initiative they label all funds that are available in Europe as either Article 6, 8 or 9. We aim to favour Article 8 and 9 funds, and in particular Article 9 funds wherever practical, i.e. those that are seeking to invest sustainably.

The real power of ethical investments comes into play when fund representatives interact positively with the underlying businesses they invest in. This may be in a fairly passive way by voting on issues at AGMs (for example, by voting to approve or reject executive pay levels), or by more assertive means such as picking up poor environmental practices with management and pushing for improvements.

A good investment team will both undertake meaningful levels of engagement as well as publicly publish their efforts for all to see. This type of ‘stewardship’ is a key way that you as an investor can have the type of influence that you are looking for as that investment fund then becomes a powerful ‘super-shareholder’, of which you investments are a small part.

Investment funds typically invest in about 50 underlying businesses and other holdings, but this can vary from as few as 15 holdings up to many hundreds.

Providers are under no legal obligation to publicly share their full holdings list and many only reveal the ‘Top 10’ largest holdings. We feel that this is wrong and that all funds that purport to be ethical should willingly display their full listing to allow for full scrutiny and transparency. We celebrate those funds that do do this and would encourage all others to follow suit.

The 17 UN SDGs are a call for action by all countries to promote prosperity while protecting the planet.

Choosing particular businesses to invest in in relation to specific SDGs under-pins the investment processes used by many ethical investment managers, which is something we promote and are always keen to see.