ethical investment seen from an IFA perspectiveApril 2000
Companies wishing to attract ethical investors need to make information on their corporate social responsibility initiatives more readily available to independent financial advisors, says Lee Coates
I spend most of my working life talking to investors who wish to put their money into socially responsible companies, often via pooled funds. Over the last 10 years, my colleagues and I at Ethical Investors Group have talked to literally tens of thousands of members of the investing public who are actively interested in the ethical performance of companies, as well as in their financial performance.
So what, as a financial advisor directing clients’ money both into funds and into individual companies, do I want to see companies doing?
It is worth pointing out that ethical investors help companies by making them aware of what worries the general public. After all, an investor is simply a member of the public with the means and the desire to invest money for the future. Ethical investors also have considerable lobbying power, either through pressure groups campaigning to change the way companies behave, or via pooled funds engaging with companies.
It is easy enough to dig up some dirt on the average company, but surprisingly hard to come up with reliable information about the good things they are doing. Too many companies are hiding their light under a bushel. Companies must provide more information, and third party verification is essential. Investors want independent information so they can make valid comparisons. This is why initiatives such as the European Federation of Accountants’ draft guidelines for auditors of environmental reports are now becoming important. They will, it is hoped, bring a greater degree of assurance to the verification of companies’ environmental reports.
However, more transparency and more communication, while important, is not enough. Companies also have to be prepared to change, especially now more funds are adopting engagement strategies and less exacting ethical criteria. What the financial advisor requires above all is that the companies respond to the ethical concerns of investors by engaging and discussing contentious issues.
As ethical investment advisers, we are constantly trying to guide our clients towards companies that we believe are behaving in a responsible manner. It is much harder for us to do this if we do not get a positive response from the company concerned. If there is no sign of movement on the part of the company, then investors are likely to seek to disinvest in the company concerned. This can only be bad news for all parties.
Lee Coates is a director of Ethical Investors Group, a firm of independent financial advisors specialising in ethical investment.
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