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January 21, 2011
Invest
Ethically for ‘All Good’ Returns
By Ron Robins, Founder & Analyst - Investing for the
Soul
Investors rarely think about how
their investments really affect them other than on a
financial basis. Though some might incorporate
sustainable investing or avoid tobacco stocks etc. for
other and/or personal reasons. But looking deeper,
investors would realise that all investment actions
create numerous effects on the world around us. Just as
a pebble thrown into a pond creates ripples throughout
the pond, so the accumulation of numerous individual
investment actions ultimately affects the lives of many
people in both good and bad ways. As in physics: ‘for
every action there is an equal and opposite reaction.’
Similarly, all major religious traditions have sayings
that express how all our actions can come back to affect
us. Christians believe, ‘as ye sow, so shall ye reap.’
The Muslims’ Quran says, ‘whatever affliction may visit
you is for what your own hands have earned; and He
pardons much,’ and for Hindus, Buddhists and Jains are
the ‘laws of karma’ where the individual experiences the
results of past actions.
Thus, the investor’s personal or spiritual development,
as well as the quality of life for the world as a whole
is affected by the investors’ investments. So in a
subtle way, investors share in the responsibility for
the activities of the companies they invest in, as well
as participate in some way in the outcomes of the
corporate actions of the companies they invest in.
Those investors who believe themselves ethical and moral
individuals—and very few would argue they are
not—therefore, have a responsibility, as daunting as it
is, to try to place their investment funds into
companies and organisations that offer ‘all good’
returns. These are returns that are not only financial
in nature, but which also benefit, and not harm, the
lives of others and the world around us.
Of course, this is not an easy task! And it sounds
absurd to many investors to even attempt to do this.
Critics are right to say that even the stocks of Enron
and WorldCom, where both companies became bankrupt after
evidence of immense fraud, were once considered good
ethical investments. But ethical investors who invested
in such stocks may argue that it was a lack of full,
transparent, and timely disclosure of their corporate
affairs that played the major role in deceiving them.
The huge challenge for ethical investors—and all
investors—is to obtain up-to-date transparent and honest
information concerning any public company’s activities.
This is why I am an ardent supporter of financial
statements that reflect actual market values versus
computer modeled fantasy values that are now used for
valuing many assets, and for mandatory corporate social
responsibility (CSR) reporting for all stock exchange
listed companies. (See my June 9 column,
A Call for Mandatory Corporate Social Responsibility
Reporting.)
Personally, until financial statements show real-time
market values and high quality CSR reporting becomes the
norm globally, I would welcome the creation of a
WikiLeaks that focuses on corporate misdemeanours. Such
a development might finally spur investors and
regulators everywhere to demand full, timely, and
transparent disclosure of everything that might affect
an investor’s investment decision. Otherwise, it is
impossible for investors to assess the profitability and
value of any company. I find it stunning the silence of
investors on these issues.
Of course what is considered an ethical company by one
investor may not be by another. I know some investors
who believe defence stocks are also ethical investments,
while others would strongly oppose. Some investors
invest in precious metals as they hold that the only
real money not subject to government or central bank
money printing and deceit are gold and silver. So
ethical investing does not necessarily mean only
investing in a few select industries or companies that
are deemed to hold some superior ethical stance.
But the innate desire for high ethics is universal among
investors, whether they be Christian, Muslim, Hindu,
Buddhist, Jain… or atheist! High ethics can be defined
as including honesty, transparency and integrity in
one’s dealings with others. If enough investors apply
their higher ethics to their investments—and so demand
from companies and regulators the kind of reporting that
high ethical standards require—then it could reverberate
in corporate boardrooms around the world. This is not a
utopian ideal. In fact, it is already demonstrated.
Studies reveal so-called ‘best-in-class’ companies
generally exhibit higher than average ethical standards
while usually offering relatively superior stock market
returns compared to their competitors. For more on this
see my July 19 column,
Can Ethical Investing Produce Higher Returns?
One last thought, in light of what I have said: ask
yourself who was ultimately responsible for the recent
financial meltdown. After all, in developed countries
around the world, particularly in the US and Europe,
investors—again, most of whom say they are ethical
individuals—gave their financial elites the
responsibility of their investment dollars, Euros and
pounds, and the power to use those funds to their
advantage. Ultimately, it was the lack of higher ethics
by all concerned that created such a financial and
economic disaster. Unless higher ethics are practiced by
all market participants another financial catastrophe
awaits us.
More investors are beginning to consider the broader
ramifications of their investing activities, investing
in sustainable investing, avoiding tobacco, and so on.
However, were investors to look more deeply into the
effects on the world that their investments produce,
they would soon realise the necessity for applying
higher ethics to their investments. As a consequence,
they might also succeed in improving the ethics in the
investment world and beyond. And that would help create
‘all good’ returns, financial and otherwise, and improve
life for all of us on our fragile spaceship Earth!
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