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Socially Responsible Investment Vs. PE ratio explained by

THE need for responsible investment has never been more relevant in the wake of Deepwater disaster in the Gulf of Mexico and multinational oil companies' controversial activities in certain parts of the world.

Responsible investment has traditionally been seen as a domain for militant activists and students whereby stocks that do not meet certain environmental, social and governance (ESG) criteria – for example, tobacco producers and arms makers – are excluded. But the investment industry now talks about fiduciary responsibility rather than ethical exclusion and it is becoming more popular.

What do you want from an ethical investment?
More and more people are taking an interest in green and ethical issues, covering subjects as diverse as human rights, climate change and genetically modified foods. Nowadays, you can choose to actively support or avoid these causes through everyday activities such as buying organic food, donating to particular charities or using recycled products. There are also increasing opportunities to make ethical choices when it comes to your own finances.

If you are worried that the companies in which you invest might be exploiting third World countries or damaging the environment, or if you have concerns that you may be supporting company activities that you don’t approve of, you may be interested in ethical investment, also known as Socially Responsible Investment (SRI). Different people have different principles and approaches and not all ethical investment funds have the same objectives. Some look to invest in companies that make a positive contribution, while others specifically avoid certain companies because they may undertake activities that the investors disagree with.

For example, ethical investors may avoid companies involved in activities believed to be harmful, such as tobacco, arms production or pornography, whilst others may wish to support companies which make positive contributions to society, by being environmentally friendly. There are also ethical investment strategies trying to balance both the avoidance of some activities whilst pro-actively supporting others.

The Principles for Responsible Investment
The following principles are observable in promoting funds of ethical investments.
1. Incorporate ESG issues into investment analysis and decision-making processes.
2. Be active owners and incorporate ESG issues into our ownership policies and practices.
3. Seek appropriate disclosure on ESG issues by the entities in which we invest.
4. Promote acceptance and implementation of the Principles within the investment industry
5. Work together to enhance effectiveness in implementing the Principles.
6. Report on activities and progress towards implementing the Principles

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