Monday, September 2, 2013

Ethical Investment No Longer The Poor Relation

The current crisis in Syria and several other African and Middle Eastern countries has highlighted the difficulties in trading in areas of political upheaval and instability. Investors are increasingly aware of the impact their collective investment has on the economy of a region and whilst individuals naturally wish to maximize their returns many do not want to make gains from business activities which are exploitative or damaging. There are many different investment strategies available to investors but a growing awareness of world affairs and a realization that many resources are finite and must be managed responsibly has led to an upturn in interest in ethical investment.

What Is Ethical Investment?

Investors can tailor their approach to investment to tie in with specific religious beliefs or political opinions. An investor may seek to avoid making direct investments in companies that trade in arms or that are linked to activities such as gambling or the consumption of alcohol. It used to be the case that investments were largely made into funds which owned a wide array of assets. Greater transparency is now a feature of the investment markets and whilst it is possible to invest in funds which specifically state their investment policies and welcome scrutiny, many investors choose to select their own individual investment targets and can take control of their portfolio. Companies have adapted their reporting in recent years and many now report in detail on their work to address requirements around corporate responsibility. Lower trading costs make it easier for individuals to access ethical investments and switch investments on the receipt of negative publicity surrounding a particular company. Ethical investments used to be characterized by lower than average returns but today ethical investments offer competitive returns which are attractive to investors.

How To Seek Ethical Investment Opportunities 

Investors may wish to put their money into companies that they make a personal connection with or they may be content with putting funds into a simple tracker that carefully selects its investments. One of the first ethical investment opportunities was a product of the war in Vietnam when a small group of Methodists sought opportunities to invest in companies that offered no connection to the conflict. Many conservatives attacked an investment scheme designed to enable investment which did not support companies involved in the Vietnam war but the concept of responsible or ethical investment was born. Financial websites usually contain a large section for investors seeking ethical companies or products to put their money into. According to, today there are opportunities to invest in companies that place the environment at the forefront of their agenda, or others that avoid trading with companies that exploit child labor and businesses that avoid trading in countries that are run by corrupt regimes. It is also possible to invest in a simple savings account held by a bank that is governed by ethical principles. Companies that fail to act ethically run the risk of alienating potential investors who can still enjoy strong returns by investing in alternative businesses or even industries.

The Future For Ethical Investment

It is highly likely that the definition of an ethical investment will evolve to incorporate many other considerations. An example may be the level of remuneration for the CEO of a company. If the reward package in place is disclosed at a level which makes investors uncomfortable the remuneration policy for the company in question may need to be reviewed. It is not enough for companies to deploy some basic strategies to achieve a status that recognizes their commitment to socially responsible business activities as any false claims will be easily exposed by investors. The next step in ethical investment is already taking place as many companies host open days where they can demonstrate their processes and talk to potential investors about the company and how it takes social responsibility seriously. An increasing awareness of the world around them means that more investors are seeking to put their money into ethical financial products. There is a growing recognition that strong returns can be generated by businesses that do take their role in society seriously. The ability of companies to examine their own environmental impact, social policies and governance is seen by many as a prerequisite for the identification and management of risks and subsequent delivery of a business plan that leads to high returns. The future for ethical investment is bright as individuals realize that it is possible to achieve strong returns whilst supporting companies that strive to make the world a better place.