Corporate
Social Responsibility (3)
Ethical Investment
Contents:
•
Overview
•
Questions
•
Other Papers in this Series
Overview
For
many companies the primacy of the shareholder is unchallenged
and is seen as a reason why other dialogue with stakeholders such
as employees, consumers and those whose lives are affected by
the company cannot redefine for whose benefit the company is run.
Therefore some people wish to use whatever investments they have
in a way that reflects their values. There are three main approaches
to ethical investment: ethical screening, positive investment
and investor engagement, which may or may not be adopted in combination.
Ethical
Screening
Investors
choose not to invest in particular types of company which
are involved in activities incompatible with the investors’
values. For example, companies which are involved in:
-
The arms trade
- Nuclear
power/fuel
- Repressive
regimes
- The
tobacco industry
- Anti-Trade
Union activity
- Animal
experimentation
- Third
World debt/exploitation
|
Positive
Investment
Investors
actively seek to invest in companies which do business in
areas and in a manner that most promote their values:
-
A good safety record
- Openness
about activities
- Social
Housing
-
Energy conservation products
- Production
of recycling equipment
- Equal
Opportunities Policy
-
Environmentally Friendly Technology
|
Investor
Engagement
Investors
use the influence afforded them as shareholders or potential
shareholders to persuade companies to adopt more ethical policies.
Investors or potential investors can influence companies in
the following ways:
-
Shareholders can propose resolutions at the Annual Meeting
of companies
-
Asking companies for information about their CSR activities
and policies
-
Informing companies that they have not been invested in
because of their ethical stance
-
As ethical investment funds develop expertise on responsible
business practices, fund managers and their staff are often
well placed to advise businesses in which they invest on
best practices
|
The
information that potential investors have to make ethical decisions
on is based upon the information that companies themselves provide,
unlike the financial information, which is subject to regulation
and audit. This information includes the social reports (see Briefing
Paper 2) and other information that companies publish or volunteer.
CSR
widens the responsibilities that business has beyond shareholders
and investors to include other stakeholders such as employees, neighbours
and consumers. Ethical investment has a role to play in ensuring
that these other stakeholders are engaged by the business, but the
extent to which ethical investment challenges the primacy of the
shareholder is debatable.
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Questions
•
What are the relative merits of ethical screening, positive investment
and investor engagement as investment strategies? •
How important is it that investors can access reliable information
about companies in order to make ethical investment decisions?
•
What problems are there likely to be when comprehensive comparable
information is not available?
•
How should this information be made available (consider Briefing
Paper 2)?
•
Could some companies benefit from adopting a specifically not-for-ethical-investment
business strategy?
•
Can ethical investment ever reach a scale where it can influence
all companies’ behaviour?
•
What should be done to tackle the behaviour of companies that do
not attempt to attract ethical investors?
•
What is necessary to attract more investors to adopt an ethical
approach?
•
What actions by governments would aid ethical investment?
•
Can all types of company be considered against the same ethical
criteria? How?
•
What responsibilities should financial regulators have with regard
to ethical investment?
•
How can ethical investment be regulated to ensure it reflects customers’
wishes given their varying ethical concerns (e.g. an animal rights
activist and human rights activist might have different criteria
for their investments)?
•
Should investors be the ultimate guardians of business behaviour?
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Other
Papers in this Series
(1)
What is CSR? HTML
PDF (277kb)
(2)
Social Reporting HTML PDF
(255kb)
(4)
Rules, Regulations and Codes HTML
PDF (259kb)
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