Ethical investing: it’s a broad area, one man’s ethical stock is another woman’ stock to avoid, but there are some rules.
Ethical investing: the good and bad
Defining ethical is not so simple. Ethical investing has its roots in religious considerations – back in the mid ‘80s, funds emerged designed to appeal to the considerations of Methodists and Quakers. F&C Responsible now run the original ethical funds. The broad idea was to avoid breweries and distilleries, tobacco, betting and weapons.
Criteria has changed. Some ethical investments focus on the battle against climate change. Others appeal to different religious sensibilities, such as Sharia compliant products.
Then there is the issue of how staff are treated. Sweatshops may be off the agenda, so might companies that operate a ruthless HR strategy, treating staff like commodities.
This creates a dilemma for investors.
Take as an example Apple. Here is a company with strong green credentials, its operations are 100 per cent powered by renewable energy. Arguably, the iPhone is a force for fighting climate change because of the way it negates the need for paper, for example. It is famous for its attitude to privacy. And yet, not all the workers employed at it subcontractor’s factories seem to be treated ethically. Back in 2012, conditions were so awful at one Foxconn factory that 120 workers threatened to commit suicide by hurling themselves from the roof of a building.
But consider the questionable human rights applied in China, recall that hundreds of millions of people have been lifted out of abject poverty in China, and Apple has played a role in this.
An ethical investor who believes, as I do, that climate change poses an existential threat to humanity, may choose to avoid oil companies. But then BP, for example, has actively pursued renewable energies, even Exxon Mobil, the company that green activists love to hate, has become a convert to the climate change cause.
As it happens, I do have a problem with investing in tobacco, but am not remotely concerned about brewers or distilleries.
But what is moral? I am a homicidal, psychopath, from the point of view of spiders.
One method to judge a funds ethical investing lumps different funds into categories - light green, medium and dark green. Broadly speaking, the darker the shade of green the stronger the ethical considerations.
Light green funds tend to avoid armaments, alcohol, tobacco, gambling, pornography and nuclear energy, but might be more relaxed with companies that sell pesticides or fur.
Medium green, apply stricter criteria but may invest in firms that are not so hot, for example, on staff employment practices. The Aberdeen Ethical World Equity fund, is an example of a medium green fund.
Dark green funds apply even stricter criteria: they avoid firms with tangible links to tobacco, armaments, gambling, fur and pornography sectors and businesses that employ child labour. An example of a dark green fund is the Kames Ethical Investment Fund.
Other examples of ethical investment funds can be seen here. I'll note that the Rathbone Ethical Bond Inst Inc and the Rathbone Ethical Bond Inst Acc are included in The Share Centre’s Platinum 120 range of recommended funds.
You could argue, that Tesla is a fantastic example of an ethical investment. Its talismanic boss, Elon Musk, seems to have made it his mission to save the world, and battery technology, electric cars and solar energy - the three areas Tesla specialises in - may be the best weapons available in the fight against climate change.
Money in ethical
It seems there is money in being ethical too. One of Apple’s key selling points is its approach to privacy, and I suspect that huge profits will eventually be earned by companies that excel in green energy or renewable transport. Energy companies that neglect renewable energies may yet eventually be disrupted out of existence. Ditto for car companies that do not invest significantly in electric cars.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.
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