Ethical investment
Since the establishment of the Ethical Investment Research Service in 1983, consumers have been able to find out information on ethical investment. EIRIS performs research into companies’ social, environmental and ethical performance needed by investors to make informed and socially responsible investment decisions.
What does ethical investment mean? For the purposes of this article, it means any area of the financial sector where the principles of the investor has a bearing on their decision as to where to place their money. Why would you be concerned about this kind of thing? After all, if you’re getting the best interest for the money you’re investing, that’s all that matters, right? Perhaps not. If, for example, you are a vegetarian, would you be happy if an investment fund that you’d put your life savings invested in a meat packing plant? Or if you’re against abortion, an abortion clinic? Or perhaps you’re an ardent anti-smoker, would you be pleased to find that your hard-earned savings are being expanded by the profits of a tobacco company?
This process requires a bit of work on your part. You’ll need to identify the issues that matter to you – you might be against war of all sorts, nuclear power, animal testing, gambling; you might be interested in the promotion of human rights, environmental issues and third world development. Remember of course that no company is perfect, somewhere along the line all companies can be traced to something slightly unethical or something that someone somewhere might find objectionable. To invest ethically, you will need to decide what is important to you and what you’re willing to give in a little for.
Types of funds
Once you’ve worked out your individual criteria, there are a diverse range of ethical funds available and different funds suit different investors.
You will need to consider:
- How does the fund research the activities of the companies it invests in.
- Is there an independent ethical committee (independent of the investment process) in place to ensure that the fund adheres to its own ethical policy?
- Does the fund communicate in a sufficient manner with its investors? That is, would you as an investor be given adequate opportunity to voice your concerns should you have any at any stage?
- Does the fund actively participate as a shareholder in whichever company it invests? And if so, does it try to encourage those companies to improve their social and environmental performance?
Your rights and powers as a shareholder
While shareholder influence for UK investors is slightly more restricted than in the US, it is still possible for us to have our say and influence the companies in which we invest. You can post or join a group of investors to post a shareholder resolution which the company has to then consider at their AGM. It is worthwhile, upon investing in a company, to seek out other like-minded investors to put forward such resolutions and change the practices of the company you are placing your cash with. One fabulous example of this is the case of Balfour Beatty who were going to build a dam on the Tiber river in Turkey. This would have displaced 78,000 people and drowned countless towns and villages. Friends of the Earth bought £30,000 worth of shares in order to protest by submitting a resolution on the dam. The company announced, several months later, that it would be pulling out of the project, stating that ‘after a thorough evaluation of the commercial, environmental and social issues, it is not in the best interests of our stakeholders to pursue the project further.’
What other types of investment are there?
If you’re serious about wanting to invest ethically, there are alternatives to stocks and shares. Consider, if you will, backing an individual project of cause. Cause-based investment is currently the preserve of financial institutions such as Triodos Bank and the Ecology Building Society as well as ethical companies who raise money by selling ‘ethical shares’.
Is ethical investment going to give me a lower return on my initial outlay than if I invested elsewhere?
This is an obvious question, yet according to a study by EIRIS, investing according to ethical criteria does not make much of a difference to the financial performance of your investment. EIRIS created five financial indexes and measuring them against returns from the FTSE All-Share Index found that they were roughly the same.