Ethical investing aims to provide a positive return by excluding activities that are considered harmful to society and the environment, and to only invest in organisations and companies that are committed to operating in a way that builds a sustainable future.

Ethical investing is one of a number of terms used to identify sustainable approaches to investing. Others include Environmental, Social and Governance (ESG), Sustainable Investing and Impact Investing.

To filter out the harmful activities fund managers first perform what is known as negative screening, this is the exclusion of companies that do not meet the ethical standards. To complement this process we proactively review and include companies that are committed to making a positive impact on the Environment, Social and Governance (ESG) practices, this second stage is known as positive screening.

Negative screening:

The first level of negative screening will be the exclusion of so-called ‘sin stocks’ for example tobacco, gambling, weapons, and adult entertainment companies. A deeper review will look to identify and further screen out companies involved in other undesirable industries such as genetic engineering, fur trade, deforestation, and poor human and labor practices.

Positive screening:

This screening process identifies companies that practice and operates a commitment to the highest standards of environmental impact, social justice, and corporate ethics. Each company is given a rating and only those with suitably high scores will qualify to be included in COCOA’s fit for investment universe.  

COCOA’s ethical Investment Plans exclusively use funds that have passed both negative and positive screening processes and have obtained a suitably high ESG score. COCOA also undertakes a further selection process to verify and enhance the selection process to ensure only the highest rated ethical funds make it into your personal Investment Plan.

Environmental, Social and Governance (ESG):

ESG means using Environmental, Social and Governance factors to review and evaluate companies and countries on how far progressive and committed they are with building long-term sustainability. Once enough data has been acquired on these three metrics a complex scoring system is used to determine the overall ESG score and is used by fund managers to determine if the asset qualifies for investment. The analysis will cover a wide range of factors and will look deeply into how the company operates and its overall impact.

Environmental reviews will see a company or country reviewed by their contribution to climate change through greenhouse gases, waste management, and energy efficiency.

Social examples include reviews of the company or countries track records in human rights, labor standards and adherence to health and safety standards. A social score also rises if a company is well integrated with its local community and holds a good reputation.

Governance refers to a set of rules or principles defining rights, responsibilities, and expectations between different stakeholders in the governance of companies and countries. A clearly defined corporate governance system can be used to balance interests between key stakeholders and can work as a tool to support the company or countries long-term strategy.

ESG fund providers review and monitor the companies they invest in against these criteria to ensure standards remain in line with the aims of the fund.

We use ETFs (Exchange Traded Funds) to build our ethical investment plans. The funds we select contain many investments across a broad selection of asset classes selected by the fund provider according to strict ethical screening processes.

Our ethical investment plans are typically made up of funds providing exposure to either company shares (equity) or bonds.

ETFs that invest in the shares of companies (ownership of a piece of the company) will exclude companies from ‘sin sectors’ such as those active in gambling, tobacco, adult entertainment, weapons, fur trade, and genetic engineering amongst others. Only companies that demonstrate excellent environmental, social and governance standards, according to the fund providers’ and COCOA’s strict criteria and ethical investing policies will be considered.

A bond is borrowing a certain amount of money with a promise to repay this with interest and can be issued by a government or company. Both company and government bonds are subject to strict screening procedures as part of the selection process.

Fund providers typically execute two forms of screening as part of the evaluation process, negative screening, and positive screening.

Negative screening:

The first level of negative screening for an ethical fund will be the exclusion of so-called ‘sin stocks’ such as tobacco, gambling, weapons, and adult entertainment companies. A deeper review will look to identify and further screen out companies involved in other undesirable industries such as genetic engineering, fur trade, deforestation, and poor human and labor practices.

Positive screening:

This screening process identifies companies that operate and demonstrate a commitment to practice the highest standards of environmental impact, social justice, and corporate ethics. Each company is given a rating and only those with suitably high scores will qualify to be included in COCOA’s fit for investment universe.  

COCOA’s ethical investment plans exclusively use funds that have passed both negative and positive screening processes and have obtained a suitably high ESG score. COCOA also undertakes a further selection process to verify and enhance the selection process to ensure only the highest rated ethical funds make it into your personal investment plan.

The roles of ethical fund managers tend to fall into two main categories. The first is to constantly be searching and evaluating new companies to potentially invest in. The second is vigilantly monitor the activities and operations of the companies already invested in through the fund and to continuously evaluate to ensure high standards are maintained.

As major shareholders of companies they invest in fund managers are able to exert considerable influence to help steer the organisation to ever-higher ethical standards through attending AGMs and lobbying the board of directors. The influence of a fund manager to positively impact the activities at the company at board level is a distinct advantage to smaller investors who’s own holding will not grant them the same level of access.

If a fund manager as part of their continuous monitoring process discovers a company has allowed their standards to drop resulting in a downgrade of their ESG score, then the fund manager must then withdraw investors’ money and remove the company from the fund.

Our ethical fund providers employ independent third parties such as MSCI (a major rating agency) to provide verification and confirmation that the processes they use are without bias or errors.

COCOA’s own investment team also monitor the ethical funds using specialist ESG company assessments reports conducted by a third parties. This adds an additional layer of review and control to ensure standards of practice are not falling below what is expected.

Our fund providers will exclude companies involved in ‘sin activities’ or sectors that are deemed as negative as part of running the ESG ethical fund. The sectors that we exclude include gambling, tobacco, alcohol, usurious financial companies, adult entertainment, nuclear power, export violators, animal cruelty, fur trade, genetic engineering, and weapons. Additionally, other sectors or industries may also be excluded depending on the higher level of screening process used by the specific fund manager.

All investing comes with some degree of risk and returns are not guaranteed and you may get back less than you invested.

It is important to be aware that fees and charges can have a big impact on the overall performance of your investment plan, the more you pay in fees and charges the less money you will make. Many ethical or so-called “specialist” investment solutions are charged at a premium. COCOA does not believe that you should pay more to invest your money in line with your beliefs and values. We strive to make ethical and halal investing accessible to everyone so we select funds that should not be more expensive than non-ESG alternatives.

At times ethical funds can perform better or worse than their non-ethical alternatives. To get some idea of how ethical investments perform against their standard counterparts you can compare market indices like the FTSE for Good against the FTSE All Share. Of course, past performance is not a reliable indicator of future performance.

No, and we work very hard to keep the costs of managing your investment plans as low as possible. ETFs charges (the amount charged by the operator of the fund) that we use to build your ethical investment plan average 0.25% per year. The industry average for specialist ETFs is typically over 0.54% per year, more than double. For actively managed funds this will be considerably higher still. The lower fee does not mean you compromise in quality as we only select from the largest fund providers and always with an independently confirmed high ESG score.

Our management fee is also very low charging a maximum of 0.99% per year of the total assets we manage for you. The more we manage for you, the lower management fee as a percentage we charge. By charging in this way we avoid any potential conflict of interest and we do not charge any form of performance fee. Our goal is always that your ethical investment plans perform well for the long-term.

We charge 0.99% per year of the total assets managed by COCOA per year up to USD 49,999. This falls to as low as 0.29% per year if we manage over USD 500,000 for you. For a complete breakdown please see our fees section, and we always present the fees on your personal COCOA dashboard.

Additionally, with COCOA Circles you can reduce your fees even further by introducing people to the benefits of COCOA where everyone in your Circle benefits from even lower fees.