Sorting out good investments from bad investments

by Linda Sanders / 16 July, 2012
Trying to sort out the “good” investments from the “bad” can prove tricky.
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When considering any investment you need to think about more than just whether you want income or capital gain, such as what your investment might do for your community, suggests Ben Gray (Letters, June 9). “One of the sales pitches for tax cuts for the rich was that this would encourage productive investment and be of benefit to the economy. Our lives are currently in a bit of a mess because of the lack of ethics [of those] in the financial community, their sole focus of maximising profit for themselves and the lack of concern of the consequences of their actions on the rest of the community,” he writes. “I hope that [this column] will address issues surrounding ‘ethical investment’ and what investments have the best return in community well-being, production of jobs and long-term sustainability, rather than just helping the rich get richer.”

Well, I don’t believe we can blame our economic ills simply on the focus on personal gain by some in the financial community. I also think investors have a right to expect a good return and that many carefully consider issues other than just the return when they invest. A discussion on ethical investment does not simply involve evaluating which fund to choose. It is a much broader debate; all businesses, large and small, weigh up the impact their strategic decisions have on their staff, their community and the environment, as well as the potential financial return of their business. The complicating factor is everyone has a different take on what ethical means. People’s focus tends to be on what they care about. So-called “bad” investments can include those with interests in alcohol, tobacco, gambling, weapons, animal testing, nuclear power or mining, and those with poor records in human rights, labour conditions or the community.

Gray mentions jobs and longterm sustainability. What does that mean? Generations of West Coasters will argue the mining industry has provided long-term jobs for their communities. But environmental groups will argue investing in the mining industry is not ethical as the resource is being depleted, and is therefore not sustainable. But mining jobs have been central to the West Coast economy for more than 150 years – longer than most industries exist. Everyone has their hobby horse. Some believe environmental matters are most important; some care more about employment or investing in local companies and supporting their community. For example, in my community, many people moved their bank accounts when a local building society set up a new branch; they saw the profits going back into the community and that it was a strong sponsor of local clubs and charities.

It would be difficult to find a company or fund that offends no one, so if you do have no-go areas, look for those that tick the boxes you care about. There is a range of ethical investment funds including those offered by AMP, ASB, Asteron, Fidelity, Grosvenor, ING and other groups such as Anglicans and Quakers. Each has its own definition of ethical and its own interpretation of what is acceptable. A fund might include alcohol, but not tobacco. Or it might include some mining companies, depending on what is being extracted. Some will look at the proportion of a company’s involvement in a certain sector – for example, if alcohol forms only a small part of its business, that company might be considered okay. Depending on how passionate you are about certain causes, you are going to need to do your homework. Be aware that it can be hard to verify the claims of interest groups; people who care passionately about a cause are just as capable of “spin” as any company.

So let’s go back to Gray’s words. He calls for investors to encourage productive investment and be of benefit to the economy. Farmers collectively pour millions into increasing production, boosting exports and employing people, yet they often get slammed for not being sustainable, and being a part of the Fonterra “monopoly”. There are no simple choices.
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