An ethical compass

| 13th September 2019
Wind turbine
Pixabay
Profit should not come at any price, particularly investments with a long time horizon, such as your pension.

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The country may be split on Brexit, but one thing most of us agree on is that our money should not be invested in a way that goes against our values.

Profit should not come at any price, particularly investments with a long time horizon, such as your pension. No one is saving with the deliberate intention of creating a future that is financially secure but socially and environmentally impoverished – because what would be the point in that? 

So most people would be pretty unhappy if they knew about the impact of some of the company shares that they own through their pension. But most don’t know.

Fossil fuels

This lack of knowledge isn't due to a lack of ethics, but rather a surfeit of labels, indexes, ratings and disclosures which leave most investors reeling. Instead, we look for something we can feel good about such as giving up meat, buying a bamboo toothbrush and shopping in packaging-free shops. 

It turns out that using an ethical compass, particularly in the world of investment, involves an ever-increasing list of regulations and standards.

The impetus to provide ethical choices for pensions and investments may actually be slowing the shift of capital away from ecologically damaging activities as it moves towards efforts to address the twin crises of climate and society. 

It’s no good focusing on the good companies, if the bad ones carry on as before. And we all have a different view of which those are.

For example while some global energy companies have turned their backs on fossil fuels to transition into purely renewable generation, others see this just as an add-on to the way they’ve always done things.

Unethical markets

The market theory is that company behaviour is driven by incentives rather than rules, by carrots rather than sticks. The incentive should be for companies to engage with stakeholders, changing their strategies to address their concerns. 

One global consumer goods company notably staked its market reputation on shifting to a more sustainable business model rather than simply being measured on growth and profitability. Sustainable business is good business too, right?

But global giants invariably still operate in unethical markets too – where do we choose to draw the line?

Companies like this are able to jump through the ethical hoops needed to be included in indices such as FTSE4Good which highlights stocks which display positive environmental, social and governance strategies. 

But that’s the problem. By choosing your investments with your ethical compass you are inherently aligning them towards things that are good rather than away from things that are bad. 

Stock market

Hell will freeze over (or Greenland will melt) before there is a stock market index called FTSE4Bad. Here’s the list of companies which are currently in the FTSE 100.

They include fossil fuel companies, mining businesses, house builders, global supermarket chains and multinational banks. Most pensions’ default settings will include most, if not all, of these stocks. 

This Author 

Bruce Davis is managing director of Abundance Investment, which advertises with The Ecologist.

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