One of the best places for your money in business is firmly in the hands of an investment management service - you may as well make it work for you, instead of just sitting around.
Most small to medium size enterprises have come up with this already - and even more if them are now looking at ethical investment management services, as opposed to a traditional choice of funds based on risk. We look at how the trend is developing, as well as the positive and negative aspects of ethical investment.
Ethical investment is generally accepted to mean investing in a fund that follows the UN's Guidelines for Responsible Investment, or a firm that does. In the Guidelines, ESG stands for environmental, social and corporate governance.
These are:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
Ethical investment was one of the big buzzwords of the business consultancy management and the offshore investment biz worlds a couple of years ago. However, overly cautious fund managers with an ethical bent may have actually done the industry a disservice, by constantly restating that investors must be trained to accept lower investments.
However, this does not always have to be the case. Many offshore banking investment managers and investment management services believe that ethical investing is actually neutral when compared to regular investing, which does not consider ethical issues. However, one of the main issues for businesses wanting to invest ethically is that ethical funds often charge higher fees, up to 0.1% more.
Rio Tinto is one company to have felt the painful effects of media and public displeasure with their corporate ethics. It was said to have caused major environmental damage at its Grasberg mine in West Papua, and the public displeasure has caused Rio Tinto to be changing its policies quite rapidly.
And the trend is definitely growing.
Business consultancy managers over the world are recommending that their clients join the 50 institutional investors, with around $4 trillion of assets invested ethically.
These companies have subscribed to the UN's principles in the six months since the launch of the guidelines, in April 2008. Some of the big names include the California and New York Public Employees Retirement Systems, Dutch Bank ABN AMro and France's BNP Paribas Asset Management.
However, the biggest gain for businesses from ethical investing is not a better public image, not the feelgood factor of ethical investing, and not the returns, which are much the same whether their money goes to an ethical company or not-necessarily ethical one. It is the fact that the world will still be there, helping the company to be profitable, for many years to come.
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