Ask 10 people what ethical means and I guarantee you’ll receive 10 different definitions. Ask 100 and the same will happen.
That’s because ‘ethical’ has to do with morals and, as each of us has a different set of morals we live by, one person’s unethical is another’s no-second-thought. All of which presents a particular problem when ethical is used as a description for financial products.
Just last week, Bloomberg released analysis of 30 of the biggest funds investing along social or environmental guidelines. They found that at least six of those hold oil companies – and often more than one.
This is only the environmental side. A number also invested in tobacco companies, which are commonly considered ‘sin’ stocks by those looking to invest ethically.
Similarly, Ethical Consumer’s analysis of 19 ethical/green funds gave scores out of 20 on a number of criteria; all but one scored below 10. The criteria included environment, animals, people, politics and product sustainability, putting it at the more stringent end of the scale in terms of screening.
Repeated Great British Money Surveys have shown that at least one third of the British population want to invest in ‘positive’ things; specifically, they consider social and environmental benefits highly important when choosing to invest their money. Even more profoundly, 67% across surveys spanning three years would be unhappy if they found out their money was funding activities they deem unethical.
All of this begs the question; where can somebody wanting to invest ethically begin to find out what matches their wants and needs? Is there any value in the ‘ethical’ tag?
Type ‘ethical investment funds’ into Google and what appears is a handful of articles and lists, along with the requisite Google adverts (this is when companies pay for their adverts to appear above search results when certain words are searched). First, note the second advert; it’s for BlackRock funds.
Click through as I did, locate the factsheet, and what you discover is it’s an advert for a fund that invests in:
- British American Tobacco
- Royal Dutch Shell
- Lloyds Banking Group
And these are only from the top 10 holdings listed in the fund. That’s investments in tobacco, in oil, in a bank with several billion pounds worth of assets in fossil fuel extraction, and in a company that does animal testing. Now, some might be absolutely fine with some or all of those. Others, not so much. Would everybody find this information? That certainly isn’t guaranteed and this is the first problem: it can often be difficult to find out just what a fund invests in.
This leads us on to lists of ethical funds. Again, in a Google search you can easily come across lists of funds but articles only tend to list them based on their returns. While that is no doubt important, it still leaves a lot of work to be done by the investor. It is not unreasonable to claim that it is impossible to invest entirely along your ethics in a pre-packaged fund going by the name or sector allocation alone. When faced with having to dig into each fund’s investments and even then perhaps further into the individual companies, it is little wonder that many people are tempted to pick a fund, cast a glance over its policy, and invest.
It doesn’t need to be this way. In my next blog I will go through the various ways investors can create their own ethical portfolio; the good news is that new industries, products and companies like Abundance mean it is becoming much easier and cheaper to do so.
Part or all of your original capital may be at risk and any return on your loan or investment depends on the success of the project. Investments tend to be long term and may not be readily realisable. Estimated rates of return are variable and estimates are no guarantee of actual return. Consider all risks before investing.