Responsible, not “ethical” investing has to be the way forward

Over the last few years we’ve noticed a notable lack of understanding within the media and the NGO world about the terms responsible and “ethical” investing and the strategies that should be adopted by investment managers. We thought we’d try to move this debate along with our take on the matter.

Let’s take the UK as an example. Investment managers, such as those in London who buy and sell company shares on behalf of their clients (large pension funds for instance), are legally required under British law to try and obtain the maximum financial return on the funds invested with them. There is a good reason for this. It is to prevent the adoption of arbitrary or subjective criteria so that (for example) your pension and that of your friends, neighbours and relatives is properly protected. Interpretations of the word “ethical” vary from person to person and it certainly has no strict definition within the investment world. Consequently an “ethical” investment strategy could be regarded as being irresponsible.

In some instances, a matter that might be deemed as “ethical” could be viewed as one of the factors that dictate the future financial performance of a listed company. It is natural, therefore, for investment managers to take it into account when they are appraising their investment, making buy or sell decisions and discussing performance with the management. Investors that do this are therefore being responsible.

When you next hear about this matter consider this: If you hear of an investment manager that has decided to sell shares in a company for “ethical” reasons, remember that they will have sold their shares to a willing buyer. Which is being the most responsible?

When you next hear about a dis-investment campaign that is being conducted for “ethical” reasons by an NGO consider this: Who manages the investments of the NGO, its employees and its trustees? Why? What do you think their investment strategies are?

Finally, do you think your pension fund investment manager should be pressured into the adoption of an “ethical” decision concerning its holding in a company? We think responsible, not “ethical” investing has to be the right way forward.