Monday, 17 October 2011

Ethical Investing

This week is National Ethical Investment Week, an initiative to persuade retail investors that it is possible to make money at the same time as making a difference.

Whilst I do not intend to endorse 'Ecclesiastical' (an ethical investment company) I though I would share this interesting article from 'Mindful Money':

"Ethical investing was long seen as the preserve of churches, trades unions, local authorities and individual investors who were prepared to give up some of the returns that the stock market could offer in order to comply with certain beliefs or simply so they could have a clear conscience.
This approach was seen as problematic because of its negative screening, which excludes stocks in sectors such as armaments, alcohol, tobacco, gambling and pornography from the portfolio. This limiting of the investment universe was bound to reduce returns, particularly at times of crisis when these sectors are seen as more resilient than other parts of the economy.

Investors were also uncomfortable with the focus on environmental, social and governance (ESG) factors. These were also known somewhat disparagingly as "non-financial" issues and many fund managers insisted that they were not material to a company's financial performance.
Such considerations had no place in the concerns of serious money managers, the argument went, because their job was to make money for their clients not to make moral judgments about the companies they invested in.

These arguments have become increasingly untenable or irrelevant in recent years, however, and you could say that investment managers are failing in their duty if they don't consider these factors. Did BP's safety lapses in the run-up to the Macondo oil leak turn out to be immaterial to the company's performance? Is the culture that allowed News of the World journalists to hack into the phone messages of murder victims' families having no effect on the performance of News International? On a broader scale, does it not matter to investors in Russia that the country's adherence to the rule of law seems arbitrary at best?

ESG issues affect all businesses one way or another. Customers and regulators are increasingly concerned about issues such as climate change, water shortages, worker conditions and executive pay so companies cannot afford to ignore them. Safety issues are central to the business performance of mining companies, oil and gas companies cannot ignore CO2 emissions and the impact of water shortages affects everyone from drinks companies to chipmakers....

Some say that sustainable investing has no place in a world that remains mired in financial crisis - but it is a very useful way of understanding the problems that we face today and will face in future. "One of the reasons the economy is in such dire straits is because of our attitude to debt, which has not been managed effectively at a corporate or a governmental level," Beloe adds. "The same thing applies with the environment - we are in ecological debt because we are using resources more quickly than they can be replenished."

Ecclesiastical focuses on nine core themes - community relations, labour relations, environment, human rights, urban regeneration, healthcare, education and corporate governance...."

Read the whole article at: http://www.mindfulmoney.co.uk/7887/investing-strategy/the-evolution-of-ethical-investing.html

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