Economy

The ‘do-gooder ethical investment crowd’ have plenty of sectors to invest in

Published

10 years ago

January 27, 2014

Simon Leadbetter

“Do the do-gooder ethical investment crowd have any sectors left to invest in?”, one tweeter pondered on Sunday. “No oil, banks, tobacco, alcohol, pharma?” Especially for them – and others who may share that view – here’s an ethical investment 101.

Ethics aren’t universal. What one person sees as unethical may be ethical to others. However, gradually we have agreed that certain activities are unethical, such as slavery. Those who argue that a certain activity is unethical tend to challenge the status quo, as the abolitionists did with slavery.

In 1958, Harvard professors John R Meyer and Alfred H Conrad published The Economics of Slavery in the Antebellum South, which identified, “The rate of return on slaves could be as high as 13% – compared to a yield of 6-8% on the railroads.” The same return on investment arguments are used to justify many unethical activities today.

At its peak, slavery represented two-fifths of the US economy, and many argued that a transition to a non-slave economy would be ruinous. In fact, the opposite was true. The same impossible transition arguments are used to justify many unethical activities today.

The end of one industry spurred the growth of innovative others. It is in innovation that investors experience the greatest growth.

Those who recommend incumbent sectors are condemning investors to low, high risk growth.

Today, ethical investors look at unburnable fossil fuels, financial speculation and fraud, selling tobacco to developing world children, the marketing practices of drinks companies and the hiding of adverse test data by bad pharma. They modestly suggest there might be a more responsible, innovative and cleaner way of creating value.

Only the most unenlightened would think that those unethical behaviours should be condoned with more investment.

In the coming years, irresponsible corporate behaviour will be called out and commonly agreed to be wrong. This represents a real danger to the share performance of those companies.

Ethical investment isn’t just about cutting companies out of the portfolio but also engaging with them to ensure better practices are deployed, practices that have been demonstrated to deliver greater shareholder value and lower shareholder risk. Lower resource usage means higher profits and better employee relationships means higher productivity.

But if someone focuses just on ethical investment, they’re out of touch with the evolution of the sector. The role of screening out the most egregious sectors makes sense, but the rise of sustainable, innovation-led, fast-growth sectors means those who want their money to do more good than harm have great investment opportunities available.

Renewable energy, clean technology, clean water, sustainable agriculture, fishing and forestry, social impact and fair trade all represent excellent opportunities with a growing global population, rising middle class, increased demand and resource scarcity. Only the most unenlightened would think that drilling deeper and extracting faster represents a sustainable solution to the resource problems we face. We need to use less, more efficiently and make our economy cleaner.

A do-gooder is “a naive idealist who supports philanthropic or humanitarian causes or reforms”. There is nothing naive or idealistic about philanthropy or humanitarian causes or reforms, or being courageous enough to face up to the population, resource and climate threats we face. The use of the phrase simply exposes the misinformed prejudice of the person using it.

All this leaves us to ask, “Do the do-evil unethical investment crowd have any common sense or humanity left?”

This article was edited after publication upon request.

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.