Did you know that the concept of “Ethical” investing isn’t new? Probably one of the earliest recorded instances was the Quakers in the eighteenth century, restricting members from investing time or money in the slave trade.
Similarly, around that time, in his speech “The Use of Money” the founder of Methodism, John Wesley, preached the importance of refraining from investing in industries that “harm one’s neighbour”, such as chemical plants.
So it would seem that having a social and environmental conscience has been an investment filter for quite some time. These days ‘responsible corporate governance’ has been added to the mix and it’s now referred to as ‘sustainability’; a measure of a company’s ability to generate long-term competitive financial returns whilst imparting positive societal impact.
I can recall back in the early 2000’s attending quite the extravaganza at Sydney’s Darling Harbour Convention Centre to herald the new ‘sustainable investment’ fund, managed by none other than the former US vice president, Al Gore.
Although his keynote address was rather more notable for its ‘Presidency’ anecdotes, it did at least introduce the concept of sustainable investment to 2,200 jaded financial planners!
These days, investors are just as concerned about a company’s contribution to society as they are about the profitability being extracted. So it’s not surprising that ethical standards are playing a large part in corporate mission statements, along with the rise of ‘corporate responsibility’ pages displayed on company websites. It would seem that today’s executives have well and truly shed the ‘greed is good’ mantra of the 1980’s
Unfortunately, though, it appears there are still executives believing their civic responsibility stops at saving electricity and using recycled paper. For them, a ‘societal impact’ means a fall in share price impacting their bonus, rather than any effect their actions may have on their customers.
Sadly, for some, the moral pulchritude that is so eloquently portrayed on corporate websites forms merely a veneer. When you scratch the surface you will still see ‘Gordon Gekko’ smiling back at you!
Do your homework when looking at ethical investing
So for any of you searching for genuine ethical investments, be very careful. When choosing either a managed fund or ETF, check out the portfolio of investments. As you really need to ensure that your, ethical stance, lines up with that of the fund managers.
For example, just recently I was looking at a very large institutions ‘ethical’ ETF shareholding. And to my surprise, I discover each of the big four banks is in the top holdings of the fund. Now, you certainly don’t need to be an investigative reporter to know that all four of these institutions have run afoul of regulators.
The current Banking Royal Commission has been a real eye-opener into the behaviours of this industry I can assure you! And if you’ve missed the ‘gory’ details here’s a link to the commission site Click here.
Shockingly, the biggest percentage shareholding for the ETF was the CBA, who have been exposed as having an appalling ethical record over the last 4 years. In fact, their most recent, a money laundering scandal, has revealed the atrocious lack of corporate governance within the company.
And of course, there’s AMP. Australia’s oldest insurance company, which has also been revealed by the same Royal Commission to be an absolute ethical ‘cot case’. Not only has the CEO been shown the door, but the chairperson was also forced to resign after the discovery of some pretty flagrant disregard of corporate standards.
No ethical fund manager in their right mind should hold any AMP shares as a result. But they do!
So just make sure you do your homework before committing to anything branded ‘ethical’. It will be very important in order to make sure you are actually getting exactly what you want, rather than a ‘fluffed up’ marketing driven phony product.
Thanks for reading and see you next time. Home
