As a person who knows what a pigovian tax is (see article link above ala mikeymike’s post and associaated wikipedia link) it seems to me that this is quite fair. let the market decide and then when government starts to tax investment to affect behaviour these funds will be less impacted and us ethical investors suddenly become very smart.

Its a shame that they are so offlimits by the business loby - they are economically brilliant imho.

I am going to hold out until closer to October 1 before I choose my provider. (by the way go greens for sticking it to parliament on the satire rubbish (hi mom)).

I pay my money (well, IRD takes it regardless) but the government makes the choice.

Therein lies the problem…

Peter : Boeing would certainly not be on an ethical investment list. That would be twisting things to the point of making the term meaningless… like extending the definition of “organic” to include GMOs. Even without the military component, any decent assessment of risks would have to factor in environmental concerns : the likelihood that Boeing will take a nosedive because of higher oil prices, and taxes and restrictions on greenhouse gases. Non-ethical fund managers will tend to discount this sort of stuff, or take profits in the short term and sell out when things turn ugly. An ethical fund needs to be in for the long haul, and favour investments which are sustainable, rather than functioning in a predatory manner.

As for serving a political agenda… I think all ethical funds should be quite clear about what they invest in and why. After that, you pays your money and you makes your choice.

Yes. I’m not against investing in organic farms, alternative power, high tech, alcohol, drugs, etc. In fact, I’m all for it, so long as the returns are there.

My problem is having my money invested in something because it serves someone else’s political agenda, as far as any investment can be politically neutral. The pledge cards weren’t an investment, but…potentially dangerous ground.

I do understand your point about taking into account all information regarding risk.

Which preferences are deemed ethical, and which aren’t? I have no qualms about investing in Boeing, but I can understand why peace activists might not be.

Would Boeing form part of an ethical investment fund?

The “ethical investing narrows fund selection” argument is a pretty standard red-herring that gets thrown around quite a lot from mainstream fund managers who are either out of their depth on this issue or feel threatened by the growth of a sector they don’t have a stake in.

All fund management is about making portfolio selection choices - i.e. necessarily narrowing the range of stocks that a fund invests in. Otherwise why bother with a fund manager when you could just invest in the index? (i.e. invest proportionally in all shares on the stock exchange you’re interested in).

The key is getting the risk/return tradeoff right. Some investors want a fund that is higher return and don’t mind higher risk. Some want lower risk and may be willing to accept slightly lower returns to achieve that.

Your question can be turned on its head to ask:

Is it ethical (or even prudent) to knowingly increase risk by not taking other available information into account? (such as a company’s risk of being caught out in a major environmental, civil or governance scandal that will rock their share price).

Your question seems to have missed the point I made in my earlier post. Ethical Investment, especially in it’s latest ESG incarnation, is all about taking account of all available information in assessing investment risk. In the past fund managers looked only at financial data, which is largely backward-looking though does allow for useful forward projections. Research into Governance structures, environmental safeguards and such things as supply chains, social impacts and workplace issues allows a much fuller assessment of the types of risks that can otherwise blindside an organisation and it’s investors.

Consumer expectations and satisfaction form a key part of share value. Those companies that act in ways which undermine that are increasingly finding that they it not only hits their market share and their profit but also their share price and investor interest.

I liked the comments around SRI and ESG. That would still leave a huge choice.

Things that p*ss me off that we could exclude: Animal Testing, Japanese Fisheries. Land mines. Alcohol and Tobacco companies. Zimbabwe. The Labour Party. Cindy Kiro.

Then there’s the wider ethical question: is it ethical to knowingly increase risk by narrowing fund selection.

Personally, I’d rather the government invest MY money based on the criteria of low risk, high return, rather than other concerns.

Thanks for that !

I learnt a lot with very little effort on my part.

Simple questions to ask, not so simple to answer - which is why the answers aren’t generally decided in blog discussions.

The design of “Ethical” investment portfolios is underrtaken by fund managers who commission research from specialist organisations (e.g. SIRIS in Australia amongst others). Yes, research into supply chains is a major part of that.

I don’t know the details on how often research organisations re-calibrate re a particular company, but once they’ve done the core research they generally maintain a watching brief for signiifcant changes in operations.

The cost can be significant, but then so is the cost of a standard fund manager. The cost of not choosing to invest ethically can be that you not only contribute to ecological degradation, sweatshop labour and poorly accountable management but that you, as an investor, can be exposed to legal and reputational risks from all of the above. Note that these are all risks that can seriously affect share prices, note Enron, Bhopal and Nike.

“Ethical” Investment was a reaction from people wanting to take a stand against the Vietnam War and Apartheid South Africa. It has grown from there to cover a range of issues and tastes.

It’s true that people’s ethical values differ which is why fund managers determine the selection/exclusion/engagement strategy for their fund and investors choose the fund they prefer.

However, the concept has ecolved substantially over the past few decades. For some time it has been used interchangeably with “Socially Responsible Investment” (or SRI) but in the mainstream financial markets overseas is now more commonly called ESG (Environmental, Social and Governance) to reflect the view from the mainstream perspective that the business case for this investment approach is about minimising a Fund’s risk exposure with regard to these factors - just as any sensible fund manager would minimise risk exposure to a range of financial factors.

For more info on ethical investment, SRI or ESG check out the Council for Socially Responsible Investment (www.csri.org.nz) or the Ethical Investment Association (www.eia.org).