12th March 2014 at 4:57pm
Climate Week, Britain’s biggest climate change campaign, got me thinking recently about how and where people invest their money and how that can make a difference to the world we live in too.
Ethical investment offers the opportunity for investors and savers to filter their investment choices. They can choose to avoid companies involved in activities they don’t want to support. And choose to invest in those operating within a moral framework that reflects their own values.
We currently look after almost £1 billion of money which is invested ethically. Our dedicated responsible investing team develops and implements the approach we take in this area. It’s a complex area to manage as each investor has his or her own set of values and it does not lend itself to a ‘one size fits all’ approach.
So what does ethical investing mean in real terms and what’s our approach to it?
Back in the day…
Whilst deliberating over how I might best describe ethical investing in more real terms, I thought of my own background. I grew up in South Africa during the end of the apartheid years. At that time, there were some investors who did not wish to hold South African companies, or even British companies that had operations in South Africa. Those investors chose to make an ethical decision based on not wanting to support the racial policies which existed back then.
The moral compass
Ethics by definition are a bunch of moral principles which govern a person’s behaviour or how an activity is carried out. We all have them, but they differ from person to person. Often our moral compass points us towards the same desired outcome – however, the direction we’d choose to get there might differ.
For example, on a climate week theme, many of us wish to live in a cleaner, greener world or are worried about climate change.
Ethics by definition are a bunch of moral principles which govern a person’s behaviour or how an activity is carried out. We all have them, but they differ from person to person. Some would see nuclear energy as essential to reducing our dependence on fossil fuels. Others believe nuclear energy is dangerous, harmful to society and increases the likelihood of nuclear weapons being developed. This second group would rather see more renewable energy options, like solar, wind or hydro electricity, being used. So even for investors who want to reduce the use of fossil fuels in electricity generation, coming up with a single set of ethics is difficult.
When the world is not enough
There are other examples, like not wanting to invest in companies that manufacture tobacco, armaments or are involved in the gambling industry.
Faith based investors, like the Church of England, have long had ethical investment policies which mean the Church avoids investing in companies which are involved in activities that are considered unethical.
Company v community
Ethical investing has moved beyond just avoiding certain types of sectors (such as gambling, alcohol, or firearms). All companies have an impact on the societies in which they operate. This impact can be good or bad.
For example, a mining company may provide benefits to the communities where mines are built by creating jobs, building schools, delivering healthcare and other basic infrastructure that may not have been available before. Other mining companies have been linked with water pollution, fuelling community conflict and breaching human rights standards.
So it’s not just about what sector a company operates in. It’s also about how a company operates.
Standard Life Investments’ approach
For us, the areas we focus on when looking at investing in companies are based on a United Nations set of standards called the Global Compact.
For us, the areas we focus on when looking at investing in companies are based on a United Nations set of standards called the Global Compact. The internationally recognised Global Compact asks companies to embrace certain principles The internationally recognised Global Compact asks companies to embrace certain principles around labour issues, human rights, environmental protection and avoiding corrupt business practices. There are other international guidelines that can help companies manage their businesses in a responsible way. These include the International Labour Organisation Declaration of Fundamental Principles and Rights at Work, the UN Guiding Principles of Business and Human Rights, or closer to home, organisations like Business in the Community.
Investing ethically profits from investing time
One thing to bear in mind is that views and attitudes evolve. Ethical boundaries are pushed constantly. Businesses are facing new environmental and social challenges every day.
This is a challenge for those managing money on behalf of ethical investors. Having your money managed by an organisation that has dedicated time and resources to help formulate ethical investment policies, as well as understand the practices of the companies they hold shares in, will be a critical factor for investors who want to invest with conviction.
Striking a moral balance
Being an ethical investor isn’t always straightforward, since deciding where to invest can be very subjective.
But, by applying socially responsible and ethical criteria to your investment decisions, you are making a stand for change. You’re balancing making a return from your money with concern and respect for wider social and environmental issues. And getting it right can combine good returns with peace of mind.
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