Ethical investment: the facts

LONDON (Reuters) - Ethical investment is on the rise. Here are key facts about the sector:

* An ethical or SRI (socially responsible investment) fund is one whereby the choice of investments is influenced by one or more social, environmental or other ethical criterion.

How investment policy is developed and adhered to varies. For example, some have independent ethical committees that have ultimate say on policy changes and company investments; others delegate the responsibility to the fund manager. Some use a combination of these.

* Ethical funds invest according to a range of social, environmental and other criteria. The three main ones that are generally talked about are screening, preference (or "best in class") and engagement.

Screening, probably the best known amongst consumers, is whereby companies are excluded because of their involvement in certain activities -- nuclear power, the fur trade, tobacco and so on. This approach also applies where companies are included for positive contributions to society and the environment: energy efficient technology and organic farming, for example.

A preference or best-in-class approach applies social, environmental and ethical guidelines to select investments. For example, a fund manager who has to invest in oil stocks might select the oil company with the best environmental management record.

Engagement does not necessarily exclude, include or prefer companies, but rather fund managers encourage companies to adopt social and environmental best practices.

* As of the end of last year, there was a record 8.9 billion pounds invested in Britain's green and ethical funds, according Ethical Investment Research Services.

That represents almost three quarters of a million accounts in ethical funds, up from around 137,000 accounts in 1997 when less than 1.5 billion pounds was invested ethically.