Ethical Investments
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Ethical investments are similar to traditional investments with only one difference. Both traditional and ethical investors pursue the same goal of capital gains, higher income and/or preservation of capital for future needs. “The major difference between traditional investors and ethical investors is that ethical investors do not want their investments going for things that cause harm to the social or physical environments. Instead they want their investments to support needed and life supportive goods and services”(Kingswood Consultants ). In this paper I will explain what ethical investments are, why ethical investments are so significant, what was the past stand on ethical investments, the current stand on ethical investments and lastly where would ethical investments place be in the future.
“Ethical investments also known as socially responsible investments provide a positive way for individuals to match their ideals and principles with their investments. The aim of most ethical investment funds is to achieve medium to long-term capital growth and/or income growth through investments in companies with a proven track record of social responsibility” (Asset Financial Management ). When the investors invest their money into companies, they are not only looking at the companies investment potential but they also look at whether the company is socially responsible. To find the answer to the previous question, ethical investors use the process called screening.
“Screening is the practice of including and excluding publicly traded securities from investments portfolios or mutual funds based on social and/or environmental criteria. Socially concerned investors generally seek to own profitable companies with respectable employee relations, strong records of community involvement, excellent environmental impact policies, and practices, respect for human rights around the world, and safe and useful products”. (Hal Brill and Jack A Brill ) 48. Ethical investors obliviously avoid investments in those firms that fall short in these areas. “There are two kinds of screening: positive, when companies help to make a better world by environmental protection, human rights achievementÐnegative. The negative screening is referred to activities, which link companies with bad thoughts in the investor criteria. For example, if a company produces chips, and these chips are selling to any armament-maker company to produce guidance missiles, this company will not be in the ethical investor portfolio”. (Hal Brill and Jack A Brill ) 49.
“Ethical investments exclude investing in companies with interests in armaments, oppressive regimes, nuclear power, tobacco, vivisection, gambling, alcohol and pornography. Ethical investors are very strict as far as the kind of business their money is going to fund. Ethical investments are also screened for positive factors. These include companies that are of long-term benefit to the community such as environmental improvement, conservation of resources, a good record of dealing with staff and customers, and an equal opportunities policy” (Hal Brill and Jack A Brill ). 50
The following shows the products and practices divided in extensive categories.
1. The types of products or services.
Negative screened:
* Armaments and nuclear weapons
* Alcohol (beers, spirits and wines)
* Tobacco
* Gambling
* Pornography
* Pesticides
2. Environmental practices
Positive screened:
* Pollution minimization/prevention
* Environmental sustainability
* Pollution control
* Conservation and recycling
Negative screened:
* Excessive greenhouse gases
* Use of tropic hardwood
* Excessive effluent discharge
* Mining
3. Companies personal policies and labor relations
Positive screened:
* Worker/family benefits
* Ethical employment practices
* Democratic workplace
Negative screened:
* Lack of trade union rights
* Inadequate health and safety records
* Poor employment practices
* Failure to provide equal opportunities
4. Animal issues
Negative screened:
* Products using animal experimentation
* Products involve any inhumane animal use
Ethical investments are significant because it easily changes where people decide to invest their money. “By investing in companies that are doing things in which you improve, you would actually be helping these companies to continue their good work. Similar logic applies to avoiding those companies whose activities you find objectionable. If enough people follow suit, the shares may lose favor and management may be forced to alter its policies. “If our power as consumers were used to the full, every company would have to account for its business practices”. (Stuart Kotler ) By investing ethically, one can gently influence companies to improve their ethical record. Like it or not, money makes the world go round. If companies found that unethical behavior caused investors to withdraw their money, it would make them think twice. “In the USA, one in every eight dollars is invested ethically, and this trend is expanding globally”. (Asset Financial Management )
The roots of modern ethical investment may be traced to the 1920s. The Methodist Church in North America decided to invest in the stock market, having previously viewed it as a form of gambling. However, they wished to exclude certain types of companies, specifically those involved in alcohol or gambling. The Quakers soon followed, but they were especially keen to avoid weapons manufacture. Public demand for ethical investment vehicles took off in America with the launch of the