Ethical Investment: The situation today
Raymond Mgadzah considers the state of health of green and ethical investments
This year’s National Ethical Investment Week (NEIW) will take place from 16 to 22 October. Ethical investing aims to allow investors to make money while also making a difference. NEIW is a campaign to ensure that everyone knows that they have green and ethical options when it comes to their financial and investment decisions. It brings together advisers, charities, trusts, financial organisations, faith groups, NGOs and community groups to spread the message concerning green and ethical investment.
The growth of ethical investments
The campaign is timely. During the past decade the amount invested in Britain’s green and ethical retail funds has surged from £4 billion to nearly £10 billion. This estimate is based on UK domiciled green and ethical retail funds. It does not include UK money invested in funds domiciled outside the UK, or in off-shore funds. There are now over a hundred green and ethical funds available to UK investors, compared with a couple of dozen a decade ago.
Alan Kirkham, a director of Investing Ethically – a group of independent advisors – said: ‘There has been a massive growth in ethical investors. A few years ago it was seen as a niche market. It’s moved on from that. I can’t see how it won’t continue to grow. People are becoming more suspicious of the markets and we are expecting significant growth in ethical funds.’
Mark Robertson, head of communications at the global responsible investment research group EIRIS, said: ‘The market has expanded substantially over the last ten years and that has been driven by growing consumer interest in green and ethical issues such as climate change, human rights, addressing poverty and other environmental issues. The financial crisis which has impacted the markets over the last few years has driven more people to think about how and where their money is invested.’
Mark added: ‘The world is changing fast and many of the issues targeted by green and ethical investment funds such as the need to tackle ageing populations, reduce levels of obesity, address the global power shortage, tackle water scarcity and climate change are creating attractive business opportunities which, in turn, are creating great investment opportunities which consumers can take advantage of.’
What is an ‘ethical investment’?
As the ethical investment market has grown, the question of what constitutes an ethical investment has come to the fore. Eoin McCarthy, a member of the Quakers and Business Group, identifies three main approaches.
The first is rule-based, which the Co-operative Bank uses. Eoin said: ‘There are about eighteen things which they won’t do. They understand ethics as not doing wrong as defined by their customers and they have surveys of their customers every year.’
The second approach involves people taking an ethical stance from the perspective of the condition of others. It’s a perspective of care as opposed to the Co-operative Bank’s emphasis on rules. It includes care for the people and care for the planet.
The third approach requires that we reason our way to an understanding of what is right action. Quakers take account of these approaches but they also ask – What is the principle involved? What does love ask of us? The answer will be in the testimonies.
Investors face challenges
Ethical investors face major challenges as they seek to invest in businesses that are ethically acceptable in themselves while contributing positively to the health and growth of our societies and economies.
Tony Stoller is the former chair of the Committee of Reference. (The committee is the ethical authority for the first and biggest of all pooled investments – the Stewardship range of funds is a Friends Provident brand, which is managed by F&C Asset Management.)
He believes that investors are beset by two significant challenges when they seek to make ethical investments. The first is to have enough accurate information on which to base any investment decisions and the second is the raft of difficult questions that leap up whenever you enter this arena.
Tony said: ‘Without good information, making investment decisions is impossible. The publishing company whose products you have always admired turns out to have an exhibitions subsidiary that runs arms fairs. Or the telecoms company that has done such good work bringing communications to remote areas also manufactures battlefield communications systems. Then also, supermarkets that help make available the necessities of life and offer real support to their local communities also sell alcohol, cigarettes and lottery tickets. How can you know enough about every company to make sure that investing in them doesn’t offend your own ethical code?’
The need for research
Faced with these challenges many investors turn to investment specialists who run ‘ethical’ funds. But, according to Tony, this is far from being entirely satisfactory. ‘The investigative task for investors does not end there. Each of the many funds that brands itself as “ethical” has a slightly different approach from its customers, perhaps markedly so.’
Some may, for example, do little more than a blanket exclusion of major categories – usually some but not all armaments, alcohol, tobacco, gambling and pornography – without delving very far behind the corporate veil. Others may be strongly exclusionist in some categories, more relaxed in others.
Tony said that running the Stewardship range of funds involves a substantial amount of original research, as well as using information available from common sources. However, even that will never satisfy every potential investor: ‘That is unsurprising, because the issues themselves are far from simple. Let’s take just a couple of examples: nuclear energy and investing in the financial sector. Most Quakers have, for many years, opposed all investment in the nuclear industry, fearing the risks to security and the difficulty inherent in long-term disposal of waste. However, there is a growing body of opinion which sees electricity generated from nuclear power stations as a key factor in mitigating the impact of carbon emissions on global warming. Secondly, micro-finance in the developing world is often seen as an outstanding example of positive investment; yet in the developed world, sub-prime lending that gives poorer people access to credit is viewed with great hostility.’
Given these challenges, Tony welcomes National Ethical Investment Week. ‘It provides a chance to reflect on how we deploy our own money and what effect we wish that to have. Genuine engagement – rather than cosmetic chatting to companies who have no real intention of changing what they do – can be a powerful force for good.’
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