Ship of Fools: Ethical Investment

Thread: Ethical Investment Board: Oblivion / Ship of Fools.

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Posted by Eigon (# 4917) on :

I'm shortly going to be coming into a modest amount of money, which I would like to save ethically.
I have a few ideas about what I want to do with it, but I thought I'd bring this to the combined wisdom of the Ship, to see what experiences other people have had and what other people have done.

Posted by Karl: Liberal Backslider (# 76) on :

sort code: 12:34:56
Account no: 98765432

Account in name of KLB Beer Fund.

Posted by the long ranger (# 17109) on :

I think you need to first think about the returns you're hoping for and the risk you're prepared to make.

In all, I'd say asking on a random website is unlikely to give you good financial advice, so take what follows with advice. I am not a financial adviser.

I like the personal touch, so I think the peer-to-peer lenders, like funding circle and ratesetter are interesting experiments. Your mileage may vary on the ethics - personally I feel they're more ethical than lending to a bank.

I don't know where you are, so those might not even be relevant to your jurisdiction.

Posted by Eigon (# 4917) on :

I'm not really asking for financial advice - my sister spent her entire career working for a high street bank, so she can give me whatever financial advice I need.
I was thinking more about the ethical side of it - companies that lend to environmental projects, for instance.
Or buying shares in a real ale brewery - that sort of thing.

Posted by Karl: Liberal Backslider (# 76) on :

Serious head on - but still on beer.

Buying shares in a single brewery might be inadvisable - they can suddenly go pear shaped.

On the other hand, there is the http://www.cmic.uk.com/

Posted by tclune (# 7959) on :

John Wesley supposedly offered this advice to Christians, "Make all you can; save all you can; give all you can." That seems like a reasonable approach. Instead of looking for "ethical" investments, look for appropriate ways of giving your earnings away. Of course, it is reasonable to avoid investing in cocaine trafficing and the like, but most of us invest in large funds more than in small single-purpose companies. So establishing whether the investment is "ethical" is pretty close to impossible, and a huge waste of time. Or so ISTM.

--Tom Clune

[ 05. October 2012, 13:45: Message edited by: tclune ]

Posted by Erroneous Monk (# 10858) on :

A number of the mainstream financial services companies have funds invested in FTSE4Good instruments. To establish whether that would fit with your idea of "ethical business", you would need to review the criteria for inclusion in the index and then consider the extent to which you think adherence to those criteria can be, and are being robustly tested.

Posted by Alan Cresswell (# 31) on :

quote:
Originally posted by tclune:
John Wesley supposedly offered this advice to Christians, "Make all you can; save all you can; give all you can." That seems like a reasonable approach. Instead of looking for "ethical" investments, look for appropriate ways of giving your earnings away.

Ethical investment funds tend to come in two flavours. One which actively avoids investment in "inethical" business (arms, tobacco ...). The other actively invests in "ethical" business (microloans, environmental ...). Of course, "ethical" and "inethical" are defined within the small print of each fund and you may disagree - for example I would consider investment in nuclear power to be ethical (it's the greenest way to generate our electricity needs IMO) but most funds would disagree. And, also within each type there are funds which will give different returns at different risks.

One of the things about funds of the second sort is that you can save and give at the same time. If you're serious about helping the poor, you might want to consider an investment fund that provides small loans to small business in poor areas that would allow those buinesses to invest and expand, bringing employment and greater prosperity.

Posted by tclune (# 7959) on :

quote:
Originally posted by Alan Cresswell:

quote:
Originally posted by tclune:
John Wesley supposedly offered this advice to Christians, "Make all you can; save all you can; give all you can." That seems like a reasonable approach. Instead of looking for "ethical" investments, look for appropriate ways of giving your earnings away.
Ethical investment funds tend to come in two flavours. One which actively avoids investment in "inethical" business (arms, tobacco ...). The other actively invests in "ethical" business (microloans, environmental ...). Of course, "ethical" and "inethical" are defined within the small print of each fund and you may disagree - for example I would consider investment in nuclear power to be ethical (it's the greenest way to generate our electricity needs IMO) but most funds would disagree. And, also within each type there are funds which will give different returns at different risks.

One of the things about funds of the second sort is that you can save and give at the same time. If you're serious about helping the poor, you might want to consider an investment fund that provides small loans to small business in poor areas that would allow those buinesses to invest and expand, bringing employment and greater prosperity.

Realistically, the only companies that you can decide about their "ethics" by any definition you care to choose are very small companies. Large companies today are conglomerates, and they buy and sell other companies with such rapidity that you couldn't decide whether your investment goals were being met on any given day anyway. AFAICS, "ethical investment funds" are marketing gimmics to let guilt-ridden rich folks feel good about themselves while getting crappy returns on their investments. Of course, YMMV.

--Tom Clune

Posted by the long ranger (# 17109) on :

quote:
Originally posted by Alan Cresswell:

One of the things about funds of the second sort is that you can save and give at the same time.

Yeah. I'm not sure that is true either.

Posted by Gramps49 (# 16378) on :

1) Don't put all your eggs into one basket.

2) Have a mix of bonds, stocks, and cash instruments. The standard is 10% in cash instruments (like a money market). Then take your age and subtract it from 100. The difference should be put in stocks. The rest should be put in bonds.

3) Use mutual funds for investing since they will give you a pool of stocks and bonds. All mutual fund companies will list themselves as "ethical." But it is up to you to do some research to find which companies meet your ethical standards.

4) You have to determine for yourself how risk averse you are. If you can tolerate market volatility favor more stocks. If you are cautious, favor more cash instruments. But understand, there is also the risk of inflation. You need to figure that into your mix too. Cash instruments generally do not keep up with inflation. When you determine your risk averse quotient you will need to adjust the standard I cited in point 2.

Posted by HCH (# 14313) on :

If you do a web search for "socially responsible investing", you should be able to find useful information. There are many people who pay attention to such questions.

In particular, there are mutual fund companies such as Ariel, Calvert, PAX World, etc.

Posted by Alan Cresswell (# 31) on :

quote:
Originally posted by tclune:
Realistically, the only companies that you can decide about their "ethics" by any definition you care to choose are very small companies. Large companies today are conglomerates, and they buy and sell other companies with such rapidity that you couldn't decide whether your investment goals were being met on any given day anyway.

Assuming you gothe standard route of investing in a fund with a bank or other financial institution, rather than investigate each company and decide whether to invest directly (which, is always an option if you have the time) then tracking how well any company meets the investment goal is the business of the fund manager - you simply have to find a fund that has investment goals that match your goals.

From what I've read most ethical funds of the second sort, that positively invest in 'ethical' companies, would have virtually all their funds in small and medium businesses. Partly for the reason you stated, large companies are impossible to track, but also because a lot of the positive funds have criteria like "creating employment in areas of high unemployment" and small and medium enterprises are far better at that than large companies.

quote:
AFAICS, "ethical investment funds" are marketing gimmics to let guilt-ridden rich folks feel good about themselves while getting crappy returns on their investments. Of course, YMMV.

Some probably are. Some actually give reasonable returns on investments. But, if companies that otherwise would struggle to raise capital to invest in equipment to expand and grow get access to that capital (and, those companies meet your criteria of 'ethical') then they're more than gimmicks.

Posted by moonlitdoor (# 11707) on :

A typical investment fund isn't providing the companies it invest in with extra capital though. Normally it is just buying those companies' shares and displacing the sellers' investment to somewhere else. For that reason I agree that investing in such funds is more about making the investor feel good than anything else.

Venture capital funds and other similar funds which support startups or expansions are providing capital but are a riskier form of investment than many are comfortable with.

I agree with whoever suggested considering peer to peer lending to small business. At present at least I think that does add available credit rather than just displacing investment because the supply of loans to small business from banks is quite constrained at the moment, at any rate in the UK.

Posted by Hawk (# 14289) on :

I read this interesting article about someone who came into a sum of money. Seems a good way of distributing money if you don't have one big thing you want to do - give it away in small amounts to many people, making them and you smile in the process.

Posted by cliffdweller (# 13338) on :

We have tried to practice ethical investing. My brother, a Wall St. trader, is derisive of the attempt, saying things like "you're going to find something dirty about every business if you look hard enough". IMHO, that's a cop-out-- it's like saying "we're all going to sin, so why not just go for it and do what you want?". Our investments are one of the ways we live out our faith.

That being said, it is complicated. There are a number of funds out there, but, as already noted, they have differing criteria about what is/is not "ethical". For example, a lot of the funds are IMHO overly concerned about alcohol, and not as concerned about some other things that are important to me.

So my advice would be to pick a few criteria-- probably just 3 or 4-- that are important to you. Since you already have a trusted financial advisor, that's all you really need to do-- she can take it from there. She will also advise you on things like the mix of stocks/bonds and mix of high-risk/low-risk, all of which usually varies depending on your goals/age/years to retirement.

Posted by cliffdweller (# 13338) on :

quote:
Originally posted by Hawk:
I read this interesting article about someone who came into a sum of money. Seems a good way of distributing money if you don't have one big thing you want to do - give it away in small amounts to many people, making them and you smile in the process.

The little whiff of poetic revenge reminds me of when I was looking at the brochure for one of those "Alternative Christmas" organizations that allows you to buy farm animals to give to people in the developing world as a gift to someone else. I was having a hard time deciding whether to donate in my ex's name a pig, a turkey, or half a donkey...

[ 05. October 2012, 16:18: Message edited by: cliffdweller ]

Posted by moonlitdoor (# 11707) on :

I don't mean to be rude to Cliffdweller but her post illustrates for me the importance of thinking about what you mean your ethical investment to achieve, not just about what companies you think are ethical.

Say you think that solar power is a good thing and choose to buy 100 shares in a publically quoted company which makes solar panels. All this means is that 100 of their shares are owned by you rather than someone else. This is of no advantage to the company, and doesn't further the cause of solar power at all in my opinion.

If you want to help the company, you need either to increase the demand for their products ( eg by buying them ) or to provide them with capital they would not otherwise have access to or more cheaply than they would otherwise get it. Buying a publically quoted company's shares doesn't achieve either of those things.

Posted by Eigon (# 4917) on :

I like the chap in the Guardian article, Hawk.
And thanks for reminding me of the CAMRA scheme, Karl - looks like I'm going to be rejoining them.

Posted by Dafyd (# 5549) on :

quote:
Originally posted by moonlitdoor:
Say you think that solar power is a good thing and choose to buy 100 shares in a publically quoted company which makes solar panels. All this means is that 100 of their shares are owned by you rather than someone else. This is of no advantage to the company, and doesn't further the cause of solar power at all in my opinion.

I agree that buying solar power does more for the company directly. Also, as I understand it, buying their shares will increase the price of their shares, and that means that the company will have more credit to invest. One who knows more about it can explain better.
At the very least, the company can issue another hundred shares if it thinks they'll be bought.

Posted by cliffdweller (# 13338) on :

quote:
Originally posted by moonlitdoor:
I don't mean to be rude to Cliffdweller but her post illustrates for me the importance of thinking about what you mean your ethical investment to achieve, not just about what companies you think are ethical.

Say you think that solar power is a good thing and choose to buy 100 shares in a publically quoted company which makes solar panels. All this means is that 100 of their shares are owned by you rather than someone else. This is of no advantage to the company, and doesn't further the cause of solar power at all in my opinion.

If you want to help the company, you need either to increase the demand for their products ( eg by buying them ) or to provide them with capital they would not otherwise have access to or more cheaply than they would otherwise get it. Buying a publically quoted company's shares doesn't achieve either of those things.

Sure. But there's a difference between investment and philanthropy. The idea of ethical investment is not to replace philanthropy, it is to invest for all the reasons we normally invest-- to produce income for the future, etc. But we simply want to do so in a way that is consistent with our ethical principles-- so that we are not profiting from something we find morally or ethically objectionable. That's why most funds focus more on what you're excluding than what you are including. What you do with the profits from that investment, then, may get into the philanthropic area.

Posted by tclune (# 7959) on :

quote:
Originally posted by Dafyd:
At the very least, the company can issue another hundred shares if it thinks they'll be bought.

No, they can release another 100 shares from their reserves of stock perhaps. But a company can't just dilute the ownership of current stockholders by creating more stocks whenever they like -- that requires the approval of the current owners.

--Tom Clune

Posted by Eigon (# 4917) on :

I agree with cliffdweller - if I'm buying shares, I don't want to invest in Evil Overlord plc. I'd much rather invest in Nice Chap Who Makes Good Beer plc.

Posted by Hairy Biker (# 12086) on :

My mother gave my children some modest sums last year and asked me to invest it ethically on their behalf. She recommended a Dutch bank called Triodos for the cash investments. They scream about their ethicalness, but I couldn't find out what it really meant. I persuaded her to let me invest in equities for the younger ones with interest rates being low and all. I spent a lot of time googling light-green and dark-green ethical funds. There's a lot to choose from. But at the end of the day you can quibble with just about all their definitions. They invest in oil companies for their low-carbon investments, in private health that arguably damages the NHS, in all manner of difficult to love multi-nationals. I think if you've got a big sum then you'd need to do your own research and invest directly in the companies that you have vetted. Or set up your own business doing something your believe in!

Posted by Hairy Biker (# 12086) on :

Oh, and I went with Aberdeen Ethical World in the end, but I can't remember why.

Posted by Schroedinger's cat (# 64) on :

It depends very much on what you mean by ethical. The definition varies based, largely on what you consider most important. Is it most important not to invest in arms/tobacco/Piers Morgan? Or is it most important to invest in Environmentally responsible companies? Or companies with good working practices? Or local companies? Or companies whose end products are positive contributions to the world as a whole? Or avoid companies drugs companies?

You can look around at companies that match your particular perspective on ethical is. Or, you could find companies that you believe satisfy your criteria, and explicitly invest in them.

All of the other comments are valid here, even if you invest directly - spread your investments, and have some focus on getting a return for your money. Risk and return need to be appropriately weighed in ANY investment. But it is up to you how you weigh them.

I think there is a real place for people like yourself, with modest sums of money, investing in individuals, in small projects, providing what can be considerable money to them. It is harder work for you, but can provide huge localised support.

Posted by Alan Cresswell (# 31) on :

quote:
Originally posted by moonlitdoor:
A typical investment fund isn't providing the companies it invest in with extra capital though. Normally it is just buying those companies' shares and displacing the sellers' investment to somewhere else.

It clearly shows I'm not an economist. But, I always assumed that by buying shares in a company I want to support (either directly or via a managed fund) then that provides indirect support to that company. After all, why would a company issue shares in the first place?

My thinking was along the lines of: Share price is a function of demand for those shares, demand is increased by good performance (higher dividends) and other factors (eg: a wish to invest ethically); me buying shares increases demand and price; increased price means greater value for shares still held by the company that can either be sold to raise capital or used as collatoral for a loan; investment increases the value of the company that will either increase share price or justify issue of further shares (many of which will be held by the company further increasing what they have available for further investment - providing the share price doesn't fall too far when the new shares hit the market reducing demand and/or the share price bounces back quickly).

Posted by Gee D (# 13815) on :

You will also have to accept that whatever decision you make will be criticised by someone as not being ethical. We agree with Alan Cresswell about the clean nature nuclear energy and would add that far fewer people have been killed or injured by peaceful use of nuclear power than by mining coal for conventional power; but many others would disagree with considerable vehemence.

Posted by Jengie Jon (# 273) on :

Ethical investment need not be about funds management.

You could argue that putting it in a plain old Friendly Society is an ethical way to invest. You might look at some of the innovative microfinance ideas which lend to the poor including Credit Unions.

I believe that also investing in Cooperative businesses is likely to be more ethical. There are also sites on line that allow you to invest directly with entrepreneurs who are trying to raise capital for specific projects (risks are large).

Jengie

Jengie

Posted by balaam (# 4543) on :

quote:
Originally posted by Karl: Liberal Backslider:
Serious head on - but still on beer.

Buying shares in a single brewery might be inadvisable - they can suddenly go pear shaped.

Most ciders seem to be doing that too.

Posted by Eigon (# 4917) on :

Hairy Biker - Triodos Bank is one of the ones I'm considering, on the grounds that I've actually heard of them!

Posted by LeRoc (# 3216) on :

I've had good experiences with Triodos Bank. In fact, there are a number of ethical banks like this in Holland.

Posted by moonlitdoor (# 11707) on :

I do think peer to peer lending has the ability to combine investment with, well philanthropy is not quite the word, but with helping something you believe in, which is why I have started doing it myself. When you save money in a bank and they lend it out, quite a wide margin between the two interest rates is needed to support the bank's overheads.

The overheads involved in peer to peer lending are very low which means that both lender and borrower can get a favourable rate compared to going to banks. So I feel I am helping the borrower as well as myself, and I get to choose which borrowers I lend to, so I can choose companies I want to help. But of course as Cliffdweller said, we are talking about investment not charity so one has to be comfortable with it as an investment in order to choose it.

Posted by sewanee_angel (# 2908) on :

I've been trying to figure out a better way to use the small bit of "extra" I've got. It isn't much but I've thought there must be a way to get more than the less than 1% interest in a savings account without going to an index fund.

Funding Circle appears to be UK only. Any one know of some US based places a newbie to this sort of peer to peer or small local business investor (tiny amount to invest) might look?

Enjoyable thread.

Posted by Alan Cresswell (# 31) on :

One option might be a local credit union. By working exclusively with local people and businesses, they would meet many ethical requirements (eg: because by default they wouldn't be investing in big business). Might be worth a look.

Posted by Schroedinger's cat (# 64) on :

quote:
Originally posted by Alan Cresswell:
One option might be a local credit union. By working exclusively with local people and businesses, they would meet many ethical requirements (eg: because by default they wouldn't be investing in big business). Might be worth a look.

Credit Unions are wonderful. Definately a place for some of your money, but worth talking to them as to how much they can use. I believe that the best way to help them is to borrow from them, and pay interest. That is how they make money long term.

Posted by sewanee_angel (# 2908) on :

quote:
Originally posted by Schroedinger's cat:

quote:
Originally posted by Alan Cresswell:
One option might be a local credit union. By working exclusively with local people and businesses, they would meet many ethical requirements (eg: because by default they wouldn't be investing in big business). Might be worth a look.
Credit Unions are wonderful. Definately a place for some of your money, but worth talking to them as to how much they can use. I believe that the best way to help them is to borrow from them, and pay interest. That is how they make money long term.

I am already a member of a Credit Union. That's how I do my banking (checking account, savings account, and so forth). I don't have an account with a standard bank (eg BofA or Wells Fargo)

In the US, banks aren't really lending small amounts to small businesses much. Or at least that's what the news stories keep saying. I'll have to do a better search for info on trustworthy US based peer to peer lending groups.

Posted by tclune (# 7959) on :

quote:
Originally posted by sewanee_angel:
I am already a member of a Credit Union. That's how I do my banking (checking account, savings account, and so forth). I don't have an account with a standard bank (eg BofA or Wells Fargo)

In the US, banks aren't really lending small amounts to small businesses much. Or at least that's what the news stories keep saying.

I think you need to distinguish between commercial banks like BofA and savings and loans, which are community-based banks. They are structured differently than credit unions, but basically serve the same customer base -- except that you don't need to be a member of the credit union group to do banking with them. The real bad guys are the megabanks like BofA that were involved in the destruction of the economy. Or so ISTM.

--Tom Clune

[ 09. October 2012, 15:52: Message edited by: tclune ]

Posted by sewanee_angel (# 2908) on :

quote:
Originally posted by tclune:
I think you need to distinguish between commercial banks like BofA and savings and loans, which are community-based banks. They are structured differently than credit unions, but basically serve the same customer base -- except that you don't need to be a member of the credit union group to do banking with them. The real bad guys are the megabanks like BofA that were involved in the destruction of the economy. Or so ISTM.

--Tom Clune

Very likely. But other than the credit union I belong to, it seems there are only the big banks around my area. It may be that I don't know the names of local savings & loans of the type you mention. The physical banks I see all seem to be pretty big (with many branches, etc) [Confused]

But I do all my basic banking via my credit union--they're fabulous.

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