How Can You Verify the Ethical Integrity of your Investments?

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The greatest good for the greatest number’ is a mantra made famous by Jeremy Bentham, and enacted by thousands of investors today. Ethical investment is about doing good with your money – or helping others to do good with it – while you earn. It’s an admirable goal, but not one that’s always easy to achieve.

Since the Great Depression in 1929, stock market players and big business have been steadfast criminals in film and TV. After the most recent recession, this image of corporations as inherently evil has been even stronger, with consumers and investors demanding more transparency and social responsibility from those to whom they hand over money.

Because so many companies are fighting for that clean, green image, it can be hard to sort the real from the fake. To help you get a feel for your investment, we have three core techniques for verifying an ethical investment.

1. Get a trustworthy portfolio manager

Ethical portfolio managers and good ethical funds will use a number of screens to ensure you’re investing in the best way possible.

The first screen to be applied is a “negative screen”: this blocks all “sin stocks” – those involved with alcohol, pornography, weapons, gambling, etc. – in addition to other conditions you or the ethical fund has decided against, such as child labour. Do mention these conditions to your portfolio manager, as recent studies show that only 11% of funds screen out child labour.

The next screen is a positive one: stock portfolios with a “positive screen” include only stocks that benefit society or the environment. These portfolios are inevitably full of renewable energy and biotech companies.

Once upon a time, combining these two screens would have landed you with a slim portfolio. But with the popularity of socially responsible investments (SRIs) worldwide, there’s now a huge range of options.

If you want to invest with a clear conscience, most ethical funds are probably right for you – however, if you want to see your money making a real change in the world you’re going to have to ask some hard questions of your portfolio manager.

2. Ask the right questions

Ask a financial advisor or go straight to the source about three vital areas of ethical business. These questions that should be no problem for a truly ethical investment:

  • Supplier relations: are the companies your investment is doing business with also ethical? Information on supplier relations is often difficult to obtain or anecdotal. To get to the bottom of it, you may have to take an activist position, or only find out when it’s too late, like McDonald’s did.
  • Holistic ethics: is your investment ethical in your chosen cause, but not so in others? For example, the Australian supermarket chain Woolworths regularly tops lists of buy recommendations, and is well-known for its community support. It’s also the country’s largest poker machine operator.
  • Community relations: the building or expansion of your investment going to negatively affect the community around it? Is it going above and beyond for the community? Johnson&Johnson famously likes to double-match the charitable giving of its employees in addition to its numerous community outreach programs.

3. Do some digging of your own

For total peace of mind, it doesn’t hurt to do a little research of your own. While experts can handle screening and answer questions about intra-business politics, it’s easy to feel like there’s a skeleton in the closet they might miss. Gear up your Googling skills, because we’re here to point you in the right direction.

To get the low-down on the latest in corporate misdemeanours, check out this Corporate Rap Sheet. Ctrl + F with the name of your planned investment, and find out if they’re on it. Alternatively, pore through a records database of more than 25,000 “ethical” companies.

To get a better idea of whether your investment is paying the tax it owes, look it up on a business registry. Here are some for the UK and the US. A company that is registered is more likely to pay tax. If it isn’t registered locally, why not take a look at the registries of companies mentioned here? If your investment is registered offshore, some dodgy accounting could be under-way.

Ethical credentials to look out for are usually specific to the business. If you’re looking for something cruelty-free in the UK, keep an eye out for the Leaping Bunny. If you’re concerned about fair trade and its effects on gender, poverty, and environment, you can also look up your investment at FLOCERT.

Often it’s hard to find a financial advisor willing to take the time to answer the questions you’ll inevitably have. Thankfully, it’s made a lot easier with our ethical investment services. We work around the clock to help you be the difference you want to see in the world. Why not get in touch?

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