Ethical Investing (The Fair Trade Ethical Trading Program)

Member Name: opinions4u

Product:	The Fair Trade Ethical Trading Program
Date:	17/05/03 (937 review reads)
Rating:

Advantages: Your money is invested for the greater good as well as your own financial wellbeing

Disadvantages: How ethical is each ethical fund?

In a world of many wrongs, the financial services industry offers the typical investor a range of ethical investment options. But over 99.5% of all money invested is not specifically placed in such funds. Perhaps it is time for us all to think again.

Ethical investing is a serious matter. While most people do not have strong feelings one way or another about how their money is invested, many prefer to know that the financial organisations they deal with operate in an environment that meets certain standards. They want to know that the money they invest is invested ethically.

So, how do you actually define ethical?

With difficulty. It is a broad subject. An investment manager who invests in tobacco companies may be considered ethical by some, and not by others. Investing in arms companies could be considered unethical, but sometimes weapons can defend freedom. Investing in the chemical industry could be seen as a polluting influence on this beautiful planet, while at the same time chemicals can be developed to counter pollution. And would stopping the extraction of oil send the planet back to the stoneage? It is a tough subject to master. Does a company that lends money to an arms company fail your test of ethical? Or does an investment fund that invests in a bank that lends money to the arms trade fail the test? Does a clothes retailer importing from countries employing child labour fail the test? As the investor, you, ultimately, have to decide!

The FTSE themselves operate a share index based on a wide range of companies they consider ethical. Banks, petrochemical companies and many other sectors are included. The criteria for companies to be members are found at the website below, but can be summarised as:

1) Working towards environmental sustainability
2) Developing positive relationships with stakeholders (eg staff and customers)
3) Up-holding and supporting universal human rights

Excl
usions include:

1) Tobacco companies
2) Owners or operators of nuclear power stations
3) Companies manufacturing whole weapons systems

Companies like Shell and BP are included, so must have passed the test for environmental sustainability. Banks like HSBC and Abbey National, whose investment managers invest in tobacco companies are also included, so while the concept of the FTSE4Good index is a positive, the typical ethical investor may not be comfortable with the criteria used. During its short life, FTSE4Good has marginally outperformed the FTSE250 index.

The most vocal advocates of ethical investing in the UK are the Co-Operative Bank who also own the internet bank Smile. The Co-Op approach to ethical investment is one of listening specifically to customer requests. The policy is regularly reviewed and contemporary issues considered. The website clearly discusses the difficulties of defining the word ethical. For example, the arms policy of Co-Op allows the manufacture of arms for the purpose of national defence. But not for internal oppression or external aggression. You can draw your own conclusion as to where war in Iraq fits. At a time when many of the larger high street banks are seeing drops in profitability, Co- Op have seen a 14% growth in profits. They also have the highest satisfaction rating of any UK bank, matched only by their own Smile subsidiary. Perhaps the ethical policy is both good for the customer and great for the business.

The Ethical Investment Research Service (Eiris) provides an excellent support forum to help you decide. The organisation is a charity set up by other charities to help identify the policies of investment companies. Their website is excellent. This site has researched the policies of many large organisations, compared them and produced examples of where they are strong and where they are not. While again, Co-Op scores highly, smaller organisations such as the Ecolo
gy Building Society and Norwich & Peterborough Building Society are drawn in to the equation.

For the investor, the Eiris site tells you which companies attract the most ethical investments. Vodaphone, HBOS, BT and Tesco are amongst those chosen. Companies that offer ethical funds include Axa, Abbey Life (part of Lloyds TSB), Clerical Medical (part of Halifax/Bank Of Scotland), Friends Provident, and several others. Many of the companies on the list are embroiled in endowment and pension mis-selling to varying extents, so you already have a compromise on your ethical beliefs!

In summary, the only way to select an ethical investment that suits you is to research hard. The Eiris site is the best place to start, but before you invest a penny, check your own standards to the company's standards, and be prepared to compromise your beliefs. The only way to be perfectly ethical is to stash your cash under the mattress, which ensures that its value will erode.

Oh, and while research is limited, there is no evidence to show that ethical investment funds perform any worse or any better than any other market sector. In other words, if you pick the right fund for you, you should do ok for yourself. There is a belief that ethical investment funds have a higher risk profile than a general fund, due to the narrower range of companies invested in. While this is probably true, a well diversified fund would significantly narrow that risk gap.

Interested? Over to you!

www.ethicalconsumer.org
www.eiris.org
www.smile.co.uk
www.ftse.com/ftse4good
www.coopbank.co.uk

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