Whether it's via pension schemes, insurance policies or personal savings plans, expatriates today can have a far greater say over how their money is invested. As public awareness grows, it's easier than ever to invest in a way which reflects your own personal values.

What is an ethical investment?

Ethical investment involves investing your money in line with your beliefs and principles. According to the Ethical Investment Association of the UK, ethical investors hope to "make a positive contribution to goals such as environmental protection, fair trade or human rights whilst still receiving competitive returns."

This is achieved by investing into companies which have strong commitments to improving the environment, or ones which strive to benefit the communities in which they operate. Alternatively, it might mean trying to avoid companies which manufacture things like weapons or tobacco.

How can you make an ethical investment?

For most people, the easiest way to invest ethically is via an investment fund. Expatriates usually hold funds within their pensions or personal savings plans and often have the opportunity to select which funds they put their money in to.

By using a fund, a team of professionals will do the research and invest your money on your behalf. Because funds pool investors' money together, they have the resources to buy shares in many different companies and hence avoid the problem of having 'all one's eggs' in the same basket.

Ethical fund managers employ either 'positive screening' (which means that they only invest in companies which are actively trying to improve the world) or 'negative screening' (which means they exclude companies which have harmful practices). Ethical funds are also ranked in terms of their 'greenness'.

'Dark green' funds tend to apply the most rigorous ethical criteria to companies, whereas 'light green' funds might invest in harmful companies, in the hope of promoting a change of policy.

There are hundreds of ethical funds available worldwide. To give an idea of the type of funds accessible to expatriates, it's helpful to take a couple of international funds as examples.

The Jupiter Ecology Fund is a 'dark green' fund which aims for long term growth by investing in companies which demonstrate a positive commitment to protecting the environment. The fund focuses on six green investment themes; clean energy, water management, green transport, waste management, sustainable living and the beneficiaries of regulation. The funds largest investments are in Cranswick (a UK-based food supplier), Latchways (who produce safety equipment for workers) and RPS Group (an environmental consultancy).

The Pioneer Global Ethical Equity fund, however, is 'lighter green' and invests in companies fulfilling three general criteria; companies with products and services that  contribute to a safe and healthy environment, that divert capital away from environmentally destructive business and engage in socially responsible behaviour. The fund has major holdings in MBIA Inc (a finance company), HSBC and Vodafone.

It's worth noting that Belgian-based institutions also offer an impressive range of ethical investment funds. Dexia, KBC and ING all provide funds with a moral slant. Notable performers include the Dexia Sustainable European Balanced fund and the KBC Eco Fund World.

Does it pay to invest ethically?

The major debate surrounding ethical investment is whether it actually pays to invest responsibly. Ethical investors may benefit morally, but do they lose out financially?

As with all investments, ethical funds can be good, bad or indifferent. Performance depends on the skill of the manager and the investment criteria of each fund. It's wise to choose a manager with a proven ability to produce good returns over several years. Consideration should also be given to the relative size and cost of each fund.

When compared to other investments, many ethical funds perform pretty well.  In 2005, the Jupiter Ecology Fund returned 21.8 percent, the Pioneer Global Ethical Equity Fund returned 23.7 percent and the Dexia Sustainable European Balanced Medium fund returned 14 percent. This compares well with the FTSE All-World Share Index which rose by 10 percent over the same time period. 

When selecting a fund it's important to do your research, not only to make sure that the fund matches your principles, but also to ensure that it is capable of making money for you.

Various savings plans are available to expatriates who want to invest in ethical funds. Some schemes allow investors to make regular monthly contributions whereas others require an initial investment of say EUR 5,000 or EUR 10,000.  A professional adviser will be able to provide further guidance on the best plans and funds available.

To sum up, individuals today are increasingly aware of the impact that their actions and investments can have on the world. More and more ethical investment products are being developed to meet the needs of the new, socially responsible investor.

The variety of products available means that people can choose funds which closely match their own beliefs. However, investors should ensure that funds combine both sound ethical credentials and good investment performance. Choosing to invest ethically shouldn't mean you can't achieve competitive returns!

Tim Bichard / Expatica

Tim Bichard is a Senior Adviser with Fulcra International Financial Planning in Brussels. For further information on any of the above, he can be contacted at tim.bichard@fulcra-international.com. Disclaimer: The information contained in this article is for general information and is not a recommendation to invest. The investments referred to in this article are only available in Belgium via authorised insurance wrappers.