Bog'liq Positive Development From Vicious Circles to V
Box 37 Ethical Investment Konrad Knerr There is a strong case for ethical or socially responsible investment in current and future
financial markets for investment monies. The main reason for this is that, in the long term,
protecting environmental and social capital creates a sustainable economic basis for financial
capital to be utilized.
Socially responsible investment represented approximately US$4.55 trillion in 2005. This form
of investment will continue to grow, as it accounts for social and environmental capital as well
as financial capital. Managed Australian socially responsible investment portfolios grew 56 per
cent during the 2005/6 financial year. In the US from 1995 to 2005, socially responsible invest
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ment assets grew 4 per cent faster than the entire US universe of managed assets.
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Recognition
of this kind of growth means this kind of investment can work as a strong force for change.
Indeed ethical investment can impact financial, environmental and social activity in the market
over the long term.
This runs contrary to the dominant short-term view many actors in political and financial
circles use to justify actions or motives, regardless of long-term consequences. It is partly
because of this that ethical or socially responsible investment is not considered a valid invest-
ment alternative to conventional profit-focused investment approaches. This is a mistaken
assumption. For example, superannuation or pension funds are generally held in trust by
trustees. The responsibilities of trustees of a superannuation fund are set out in the trust
deed. Generally money held on behalf of members of a superannuation or pension fund that
is not used to cover costs, charges or expenses or for the immediate purposes of the fund is
invested. The word ‘invest’ in this context means the purchase or acquisition of some form
of property from which interest or profit is expected. Trustee covenants generally require
trustees to formulate an investment strategy with regard to the composition of the entity’s
investments as a whole, including the extent to which investments are diverse, or involve the
entity in being exposed to risks. Hence trustees invest fund monies in the interests of members
and the financial interests of members are served by adequate diversification across different
asset classes. So choice is exercised across different kinds of alternative investment options
in different markets to avoid risk.
There is great interest in the environmental and social impact of business activities for these
kinds of investment choices. Financial markets regulate the availability of such funds. However,
in financial markets focus is generally on expected future returns, not on past performance. So
in competing for finance it is necessary to show potential providers of capital the economic
prospects of success and security associated with financial commitments. Any financial nego
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tiations over future expectations and risks that take place in investment markets dictate the
flow and direction of financial capital. Hence access to finance can determine the investments
in types of production processes, business directions and products themselves, as well as the
conditions for these investments.
This is where the idea of ethical or socially responsible investment has potential to change
markets. There is no invisible market mechanism that regulates financial flows. Each individual
citizen is an actor in the financial market. Each individual influences the market by exercising
financial decisions based on considerations that may factor in ethical, environmental or social
consequences. So individual citizens as actors in this financial process can influence and shape
economic development. Ethical investment can be utilized by business to move capital towards
more sustainable (ethically, socially, environmentally beneficial) enterprises, particularly when
they demonstrate significant returns against calculable risk. This can create a shift towards new
sectors in financial markets and growth in areas of business that may not otherwise receive
finance. Thus economy, society and environment are not antagonists in the market; rather, they
are dependent on one another. Ethical investment can therefore be very effective in creating
change in global financial markets.
