Going for good

If ethical and responsible investment is the future, is it set to be the only kind? Looking ahead, Amanda Davidson of John Scott-Holden Meehan is optimistic but realistic.

When Green Futures publishes its 100th issue in 2013, will we still be talking about socially responsible investment (SRI), or will it be so mainstream that the term will have run its course? If SRI is all about choosing to invest in companies that engage in ethical business, it’s unrealistic to imagine that all funds will be ‘responsible’. As long as arms manufacturers or tobacco companies continue to exist, there’ll always be a difference between conventional and SRI funds. And accepting this means there will be several shades of grey in between, too. At the moment there are three ‘shades’ of company that ethical investors might choose to hand their cash over to. Those with a long culture of behaving in the right way. Many are founded on strong principles, like the Co-operative Bank. Others have simply developed a strong sense of social awareness over time. We can be proud of the fact that UK companies are leaders in this field in Europe. Businesses where the top dog, usually the CEO, has a strong personal commitment to corporate social responsibility (CSR), which permeates the rest of the company. The danger here is that when this individual leaves, there can be a loss of focus, unless a deputy is willing to pick up the baton. An example? The departure of organic enthusiast Malcolm Walker from Iceland. Wrong doers that have been castigated and as a result have suffered major business disruption or costs, as in the case of Shell. Having seen the costs to the company, “these people tend to get corporate social responsibility in a big way and become pretty evangelical,” explains corporate responsibility consultant Richard Aldwinckle. Most companies will, of course, say that they have bought into CSR. But there is a big difference between companies who have real conviction, like those above, and those who simply see it as a fig leaf or something to tick off. CSR is a relatively new concept, and it will take time for people to think it makes sense for business. The real obstacle for companies is their duty to shareholders - and shareholders demand profit. Sadly this can lead to short-term decisions being made for immediate gain, which might in actual fact be damaging to performance over the longer term. It is up to the companies to be open and honest about their stance in terms of driving profits, but shareholders themselves can and should put more pressure upon companies to focus on the longer term. In eight years’ time the way the companies behave will, if anything, have a more meaningful profile. The relationship between embracing corporate social responsibility and improved profits should be even more explicit. This is all good news for SRI, as there’ll be a wider choice of companies in which to invest. Fund managers and investors will be able to pick and choose companies, and the weight of their investment will force the laggards to get their skates on. One area we’re tipping to be really big is alternative energy funds. Whilst you don’t see many such ethical venture capital trusts at the moment, it’s quite clear by the number of local power cuts we have in London that the current infrastructure clearly cannot cope. But that is a subject for another day! Amanda Davidson is a financial planning director at John Scott & Partners, incorporating independent financial advisers Holden Meehan.

26 January 2005

Amanda Davidson