Summary: Can the words ' ethical investment ' really be put next to each other in a sentence? Isn't investment all about capitalism run wild? Do ethics really matter under close capitalist inspection? Isn't it enough to simply seek a reasonable rate of return on money invested? This section seeks to answer the what and why of this little known but fast growing financial sector.
For those of us who try to look at investment with a conscience, ethical investment is possible via a number of collective funds or individial stocks.
Back in the eighteenth and nineteenth centuries, religious organisations were the first to use morals to help make investment decisions. In those days, the aim was simply to avoid involvement with companies whose products were not approved of - alcohol and gambling for example.
Since that time, the use of a moral compass to guide investment decisions has evolved to include ever more complicated strategies and wider ranges of companies. The ideas of socially and environmentally responsible investment have also been developed. This means that some investments are favoured for being acceptable, whilst others are excluded for being less agreeable. The idea of active engagement within companies has also been developed.
The advanced levels of analysis in this area means that most 'investors with a heart' are better using a collective investment fund which specialises in the subject or simply following their lead. It is almost certainly enough for most investors to focus on picking profitable companies for investment, without needing to then filter for environmental policy or charitable work.
Most ethical funds will employ some form of advisory group or board to help formulate their ethical policies. By doing this, the fund manager removes much of the responsibility from themselves for their policies and therefore are only responsible for actual investment returns (something that is favoured on Wall Street).
These committees will be responsible for such things as:
- deciding upon any selection criteria
- making sure that the fund and fund managers comply with their stated policies
- screening companies the fund may select from
It needs to be said that this area will not be applicable to everyone. Your author, for example, is a very enthusiastic recycler and explains the impact of global warming and climate change to anyone who seems to not understand. And yet, I still find it very difficult to invest with morals - I just want to make a profit!
A changing investment climate
The developments in recent years to better understand the potential problems faced by humanity from climate change also offer investment opportunities. The amounts of money that will need to be poured into R&D are astounding, as are the amounts that will be required for adaptation and mitigation.
With such large amounts required in coming decades, there will be huge economic shifts required. For example, the gradual movement towards a green (low carbon) global economy will have a profound impact upon the oil majors. Their subsidies will need to end at some point, and their business models will likely come under intense pressure.
In direct contrast, companies that are involved in the production of clean energy via methods such as solar technology and wind power stand to reap huge benefits. The question is whether you (as an investor) will be on the right side of these changes and whether your portfolio will be correctly positioned for the moving balance of power. I have read that some of the wealthiest private individuals in the world are backing projects involved in solar power - they can see the future coming and want to be positioned well.
In the early stages the new technology is hard to invest in in a typical stock market investment (information here). In the early years as the projects are dependent upon research and development their typical investors are business angels and venture capitalists. Once a good part of the growth has been seen and the story is well known, the company will move towards an IPO so that the rest of us investors have a chance. This means that there will be many environmental projects to invest in at some point, but for now the stock exchange has a limited range of options for us.
As may be becoming clear, these types of situations are for the long-term buy and hold type of investor. A day trader cannot survive in the world of product development... Therefore, an ethical investment fund is probably a wise decision rather than try and time or trade positions.
The pages in this section will explain some of the background information which will hopefully help to guide your future stock market thinking...
The Ethical Investment Dilemma
What Are The Main Ethical Investment Strategies?
How And Why Does Positive Engagement Work?
Are Ethical Investment Funds Higher Risk Than Other Similar Funds?
What Activities Does Negative Screening Filter From Ethical Investment Funds?
What Is Positive Screening?
Should You Be Investing In Water?