Few people realise that almost all ethical investing is about what you don’t invest in, not what you do. This is called negative screening and it works like this.
Your adviser or fund manager asks you what you object to – armaments, pornography and so on – and then tries to make sure you don’t invest in that. Otherwise he or she invests your money in whatever produces the best return.
But this produces some strange results. Three of the most popular investments for ethical unit trusts across Europe are BG Group, the world’s largest gas company, producing 186,000 barrels of oil-equivalent a day, enough to generate 250,000 tons of carbon dioxide; Nestlé, still causing malnutrition by promoting powdered baby milk to poor mothers in the developing world, despite many years of campaigning to stop them; and HSBC bank, recently discovered to have laundered billions of pounds in drug and terrorist money and manipulated Libor rates at our expense.
When you start to look more closely at the details of these negatively screened funds, contradictions abound. One fund called Sustainable Futures holds a major investment in a shale oil exploration company. Another invests in GE. They justify this on the basis that arms are only 0.5% of GE’s turnover, but in such a multinational giant, that amounts to €830m of arms sales a year.
So ethical investing is in truth negative investing. But the rise of positive investing provides the opportunity to bring your money more closely in line with your values.
Positive investing is what we might naturally imagine ethical investing to be – putting our money into businesses that have delivering a social or environmental benefit at their heart, alongside the financial return.
There are a growing number of opportunities to make investments in fair trade, community renewables, charities, sustainable buildings, developing world micro-finance and much more. There are now also a small number of funds that invest in companies offering a range of solutions to climate change and health issues.
These are investments that one can get truly excited about. What’s more, it is often possible to invest directly in the company, making you a member of the business and also avoiding the middleman’s fees.
To encourage the market in positive investing, I will be launching Ethex at the end of 2012. Ethex, now registering users at www.ethex.org.uk, is a website that brings together all the positive investment opportunities into one place. You can easily compare and evaluate them, and Ethex’s brokerage team will then make any investments you choose on your behalf. It is the first step in creating a collaborative community of ethical investors.
I believe that it is positive investing that will ultimately unlock ethical investment across the nation. The message it offers is clear and unambiguous. It also bridges the gap between making money and giving it away.
Traditionally, investing makes you money but has a negative social return, whereas giving has a strong social benefit, but all your money is lost. This can result in your investments doing more harm than good. For example, if you invest in tobacco companies and give your profits to cancer research.
But positive investing offers the win-win – make a small return and do good for society at the same time. Who can resist that?
Jamie Hartzell is managing director of Ethex.
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