A greater need for transparency is emerging around company ethics and it is no longer enough for investments to simply make money. Clients are asking about the origins of profits, and querying the levels of social responsibility displayed by the companies they do business with, either directly or indirectly.
Investment strategies, portfolios, tools and resources can be used individually or in concert to activate portfolios designed to meet a variety of impact goals - either in select allocations or across the entire portfolio.
Costing a clean conscience
To better understand the nature of ethical investing, we may ask ourselves a provocative question to clarify our personal values. For example: Is a $500 profit from investments in a child labour scheme the same as $500 gleaned from a burgeoning renewable energies initiative?
For most reasonable people the answer is a definitive no.
A problem might emerge for some people however, when shades of grey are introduced into the equation. The idea of baby-faced poverty stricken children heading down a mine-shaft to fetch baubles for pampered Westerners is an extreme scenario. Would the $500 be less morally tainted if the mining company released a statement saying that they would be making major efforts to ensure all workers were over the age of 18? Would you require proof? Would you investigate further? Do average people have extra time on their hands for investigations and activism?
What if the company's statement was accompanied by an additional $200 windfall?
The idea of baby-faced poverty stricken children heading down a mine-shaft to fetch baubles for pampered Westerners is an extreme scenario.
Every individual has a line that they draw in the sand regarding personal values and priorities. The varying shades of grey can often mean bring an added layer of complexity when it comes to ethical investing.
The insights can be confronting for some investors, or a reality check on financial limitations for others.
Morgan Stanley's Institute for Sustainable Investing conducted a proprietary study on over 10,000 mutual funds and 2,800 Separately Managed Accounts over 7 years. The results showed that sustainable investments usually met, but often exceeded, the performance of traditional investments. i
What is important to you?
Many people have particular causes that are close to their hearts. Those causes help Financial Advisers identify the best opportunities that correspond with an investor's ethical objectives. Examples of actionable themes that may be applied within an ethical investing framework include:
- Climate Change and Fossil Fuel Aware Investing. These portfolios take a two-pronged approach to tackling environmental issues through smarter, more ethical choices. Practically, this means eliminating or reducing investments in companies that produce coal, oil and nuclear energy or own significant fossil fuel reserves. A Fossil Fuel Aware portfolio would also focus on companies that reflect the best environmental practices relative to their industry peers. The broader goal is supporting the transition to a lower carbon economy.
- Gender Diversity Investing. These portfolios have the broader social aim of promoting better gender diversity and equality. Investments favour companies that demonstrate a commitment to employing and advancing women in high-level leadership roles.
For more information on Ethical Investing, Sustainable Investing and Investing with Impact, please contact your Morgan Stanley Financial Adviser.