Investment - Ethical or Not?

How you invest can make a difference is the central premise behind ACCR's work.

More and investors are agreeing.  In July 2016 The Responsible Investment Association Australasia (RIAA) released a report showing that in Australia,   responsible investments have outperformed there benchmark over 1, 3, 5 & 10 years  and that they have doubled in size over the last two years hitting $51 billion.  You can see the report here. 

Responsible Investment: a term for investment processes based on the premise that ESG issues can affect financial performance. It encompasses ‘engagement’ for the purpose of assessing and improving future financial performance (which may well include support for shareholder resolutions) and ‘integration’ - the explicit inclusion of ESG risk into financial analysis.  It does not, however, imply investment which gives any priority to ethical over financial outcomes.

Ethical investment means that as well as the risk and return influencing your investments, your ethics do.  In other words putting your money where your mouth is.  Choice has reported on ethical superannuation here. This report "New Zealand Superannuation Fund: How Responsible is it?" by one of ACCR's founders Dr Robert Howell is a good summary of ethical investment issues, so well worth reading for non New Zealanders. Robert's book "Investing in People and the Planet" is available from quaker.books@quaker.org.nz .

There are two basic methods of ethical investment, choosing what you invest in or becoming an shareholder advocate who changes what their company does.  Of course you can do both and many investors do.

Screening or choosing what you invest in.  You can chose to invest in good things (positive screening) or avoid investing in bad things (negative screening).  If you are already invested in something and then sell the investment, this is called divestment. 

Divestment (or not investing in the first place) is appropriate where you cannot influence a company to do better.  Because of that there is a large campaign to divest from the fossil fuel industry.

However their are many companies where investors and other stakeholders may think that the company can do better.  This is where shareholder engagement or advocacy comes into play.  Active investors or shareholder advocates may write letters to their companies, meet and discuss issues with company management or industry associations and win support for actions proposed from other shareholders and other stakeholders.  After doing this the next step may be to move shareholder resolutions.  Moving shareholder resolutions forces the company to look at the issue and allows other concerned shareholders or stakeholders to be engaged.

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