Ethical shares, stocks and companies

 The Smart Share Investor is an Ethical Share Investor

 Do you regularly avoid products at the supermarket because they are against your personal values?  For example cage eggs.  Or do you actively seek out food choices that are positive for the environment and society? For example fair trade coffee or chocolate?

The weight of consumer power is changing the product offerings in supermarkets as people make choice demands in line with their values.  Fair trade coffee and free range eggs make up significant shelf space in stores compared with 5 years ago.

Many people make consumer choices based on their ethics but may not be aware that they can make the same choices within their superannuation and investments.  Your superannuation fund could be investing in a multinational chocolate manufacturer that exploits developing countries, participates in bribery and corruption and indirect slavery with its sourcing of cocoa products.

Investment power can change companies for the better. 

What is an ethical investment?

Ethics is subjective, so ethical investment is really about what you think is environmentally and/or socially positive.  There are a number of ways an investor can ensure that their assets are reflecting their social and environmental values.

The Positives

An investor can seek to choose companies that are energy efficient or that display good corporate ethics with staff retention, customers loyalty and community goodwill through philanthropy. 

A great example of corporate ethics in action is Blackmores (BKL).  Blackmores aim to have their head office self sufficient in water and energy consumption and are on the road to achieving this.  Finalists in the Pharmaceutical Packaging Action Award for the past 5 consecutive years, they have actively reduced packaging over 10 years as signatories to the National Packaging Covenant.

Philanthropic activities have included 3 tonnes of empty vitamin bottles returned to Thailand with revenue donated to charity, mangrove rehabilitation in Malaysia and primary school donations in Samoa.

Blackmores share price has been spectacular.  From a share price of $10.77 in March 2009, it has steadily increased to $32.10 as at March 2011, a 99%pa return for the last 2 years!  Blackmores certainly shows that you can remain committed to your ethical principles and still receive a competitive return for your investment.

The Negatives

Unfortunately for investors, not all companies are addressing the external risks to their businesses.  These risks include carbon risks, customer boycott, sexual harassment claims and shareholder anger on director remuneration.  

The effect on logging company, Gunns, who’s share price fell from $3 in 2008 to a low of 26 cents in June 2010 illustrates this.  A very public legal stoush with environment groups caused a lot of negative media coverage for the group and highlighted how poorly management handled themselves.  Their bank, ANZ, would not agree to fund their pulp mill because of public pressure.  This recently resulted in a total change in Gunns management team and active policies on using plantation rather than native forest logging.  Their share price has doubled from its low, a reflection of the impact of these changes.

The Activists

As an individual shareholder you can vote on resolutions at Annual General Meetings (AGM’s).  Many shareholders are choosing to cast their vote negatively on board and management salaries, if management are not performing in line with their remuneration.

An investor can also invest in a share fund that actively puts resolutions to the boards of Australia’s largest companies in respect to their climate change policies and climate change risk management. 

This has already had a positive effect on the 3^rd largest oil and gas company in Australia.  Oil Search (OSH) chose not to report their carbon footprint to the Carbon Disclosure Project from 2006 to 2010.   An activist share fund requested Oil Search send information on its carbon risks to its shareholders.  Included, was the resolution to vote on carbon footprint reporting in its AGM in May 2011.  Carbon reporting is the first step in assessing the carbon risk and costs to an organization.  With this understanding, a company has the ability to benchmark efficiencies, risk reduction and cost savings. Smart investors are already factoring in a company’s response to climate change when assessing their financial value.

Making Money

Yes you can!

Many studies have found that the ethical investor can make the same return as a standard investor, and in some cases, a better return, as seen in the table below.

Performance that pays

Ethical Investment based share funds returned on average, outperformed the average mainstream share fund over 1,3,5 and 7 years. They also outperformed the sharemarket index over the same periods as well.

Invest smarter, invest ethically

Companies that think about beyond profits, to include people and the planet are more likely to be aware of external threats and opportunities to their business.

Be a smart investor. Invest in companies that value profits, people and the planet. Invest ethically. 

Contact us now to invest ethically.

Disclaimer: The contents of this article are intended as general advice only.  No specific person’s circumstances, financial situation or objectives have been taken into consideration.  You should not act on the information provided without seeking personal advice from an appropriately qualified financial planner.  Information included from third parties has been reproduced with their permission.