Maybe you've got some money to invest—if so, how can you make sure you avoid unethical businesses?by Andy Davis / July 19, 2018 / Leave a comment
Published in August 2018 issue of Prospect Magazine
Most people want to invest responsibly. Recent research by the Defined Contribution Investment Forum found that 81 per cent of people said businesses had a wider responsibility than making a profit, while 61 per cent assume pension schemes follow responsible/sustainable investment principles.
Most don’t, which is why the government said in June that trustees will have to factor environmental, social and governance (ESG) issues into their investment process.
So, pension scheme trustees will face similar questions to private investors: how can we be sure that our money is being invested in line with our principles? This is tricky, as the Church of England demonstrated four years ago, when it emerged that it owned an indirect stake in Wonga, the payday lender. How can we avoid problems like this?
A recent paper from the BlackRock Investment Institute is helpful: you can use exclusionary tactics (ruling out companies selling tobacco, fossil fuels, and weapons), a thematic approach (targeting specific opportunities such as low-carbon energy or transport), impact investing (seeking specific non-financial outcomes such as energy or water efficiency, or increased provision of affordable housing), and targeting ethically-minded companies.
In practice, the last of these is likely to be the commonest approach. There is a growing number of indices that target high ESG performers, such as the MSCI Europe SRI Index, as well as many funds that offer an ESG focus. In addition, Morningstar publishes…