Investing Responsibly

Ethical or socially responsible investment appears to offer straightforward choices for people seeking better social and environmental conditions. Yet balancing your values, and available options can be complicated. And that’s before financial returns are considered.

The terms ethical or socially responsible, suggest that anything else is unethical or socially irresponsible, according to Digby Anderson in What has ‘Ethical Investment’ got to do with Ethics? (1996). However, Ross Knowles in Ethical Investment (1997), claims the term ethical simply differentiates it from conventional and doesn’t necessarily infer that conventional is unethical. In fact, many ethical investment portfolios include the same companies offered in conventional ones.

Broadly speaking, socially responsible investment requires the investor to make a conscious choice involving the social and environmental performance of a company, not just its financial returns. But defining ‘ethical’ is a complex values-based system, dependent on individual background and beliefs. What one person considers ethical, another considers unethical.

For example, some investors avoid companies involved in weapons manufacturing, either directly or indirectly, while other investors may ‘distinguish between offensive and defensive military activities’, according to Anderson.

Vegans would probably reject all investments involving any animal-related activities, while non-vegans may choose companies not involved in intensive animal farming practices, animal testing, and the fur trade.

Equal-rights supporters may examine a company’s anti-discrimination practices to ensure equal treatment of all workers, regardless of age, gender, nationality, sexual preferences or marital status. However, in the United States, some right-winged conservative groups avoid companies that attract homosexuals and people from non-Christian religions, or that offer same-sex and de-facto couples the identical packages, such as health care and superannuation, as married couples, as reported by Peter Kinder of KLD.

So what criteria might you consider important when investing your money in a socially responsible manner?

The main criteria currently involve issues such as environment, worker relations, armaments, alcohol, gambling, prostitution and pornography, tobacco, uranium, and animal rights. Within each of these categories, there are both positive and negative issues to weigh-up. Moreover, each category may link in with another.

What measures does a company take to reduce its environmental impact, even if the industry isn’t directly taking environmental resources? Does a company assist with community issues, say by funding or donating to specific causes? Is a company’s history with worker relations good or bad? Does the company work beyond legal requirements in these and other areas?

Working within legal limits doesn’t always indicate ethical behaviour. Treatment of indigenous peoples in relation to land rights and employment policies, both in Australia and overseas, has an appalling history, with the mining industry being amongst the worst offenders.

Businesses, while having an acceptable environmental and socially responsible record in their home country, such as Australia or New Zealand, may act irresponsibly in countries where fewer restrictions apply.

Some companies are either directly or indirectly involved in paying wages so low that workers live in the streets, not even being able to afford the most basic accommodation. Much of the clothing and footwear industries are implicit in this behaviour.

Low wages can also force women into prostitution, such as the beer-girls employed by beer companies in developing countries. Working for as little as two dollars a night, selling branded beer to customers, these beer-maids resort to ‘sleeping’ with their customers in order reach sales quotas and earn enough to support themselves and families.

Examination of a company’s own investments is also necessary. A company’s profile may meet with all your ethical and socially responsible standards, while its investment portfolio includes companies that don’t, for example industries relating to uranium, prostitution, or clear felling of native forests.

A certain level of hypocrisy often exists between responsible investment and lifestyle. An investor may avoid companies involved in certain activities, such as gambling, while having the occasional flutter on the poker machines, bet at the races, or enter lotteries. This behaviour is still investing in that industry.

Buying foods that have a negative contribution either environmentally or socially is one of the hardest issues to avoid. Unless you are able to go one hundred percent organic, somewhere you will be indirectly supporting an industry that manufactures synthetic pesticides or artificial additives. Farmers may be paid prices well below real production costs. Even ‘fair-trade’ has its pitfalls, like the coffee industry that always offers an above-production price, but below market price when there is a shortage, David Ransom in New Internationalist.

Your telephone services supplier may invest in uranium mining, while your computer and mobile phone probably contain toxic metals, like mercury and lead. Avoiding investing in armaments, but expecting your government to protect you from acts of war may be construed as hypocritical.

With the movement towards, not only ethical investments, but also leading correspondingly responsible lifestyles, much of this hypocrisy will fade. Public pressure will create greater, affordable choices, and companies will be forced to change their social and environmental performance.

Once you have identified your values, locating options is the next step. Australia’s Ethical Investment Association (EIA), at www.eia.org.au, is a good starting place for both Australians and New Zealanders to learn more about the practicalities. EIA describes the main screening processes used to identify companies involved in suitable practices, and discusses the major investment options, such as superannuation, managed funds, and shares.

Ethical investing requires a pro-active approach. If you are buying shares directly, you need to investigate each company’s corporate policy, and how (or even if) they evaluate it, for ‘action speaks louder than words’. When investing in superannuation or managed funds, examine the methods used to determine ethical practices, and ensure you can access a full list of the companies, with which the investing body is involved.

Keep abreast of issues of companies and funds you’re involved with, raising any concerns you have with them; public complacency may allow them to slip into unacceptable practices.

Financial returns are important to most of us. Thankfully, current evidence shows that socially responsible investment choices give returns equal to and sometimes better than conventional ones. Although, you still need to investigate all financial issues.

Anderson argues that ethical investment is nothing but a trend for most people, yet with its history dating back to the early seventies and the demand growing, it would seem that the trend is becoming commonplace. Twenty years ago, the majority of people in Australia didn’t recycle. Now, millions of Australians are committed to at least basic recycling.

If ethical investing is ‘trendy’, but becomes an inherent part of our positive interaction with this planet, then it can only be a good thing. As more people become involved in ethical and social considerations when investing, as well as everyday living, companies will be under more pressure to lift their standards in environmental and social responsibility.

When I began researching for this article, I intended to write about the reasons and practicalities of investing responsibly, but this information is readily available. Instead, I found myself questioning my own values and choices, while deepening my knowledge and thinking about investing responsibly. I hope this article will assist in deepening your knowledge and thinking too.

References available