It Pays To Be Ethical

Author: ZENIT



Firms, and Investors, Giving More Attention to Corporate Behavior

NEW YORK, 20 JAN. 2001 (

Growing concern about the effects of globalization has forced companies to pay more attention to the ethical consequences of their actions. Questionable conduct can result in bad publicity and lost sales.

Now, it can even lead to a lack of capital, as a growing number of investment funds have begun to channel money to firms seen as ethically acceptable.

Two of Britain's biggest charities, Oxfam and Christian Aid, for instance, are switching their joint pension fund to invest on an "ethical" basis, The Telegraph reported Jan. 13.
Martin Tyler, finance director for Christian Aid, said: "Christian Aid has been looking for a proactive approach to the management of our pension fund which is socially responsible and provides a close match with our own ethical criteria while staying within pension trust law."

The charities say their new "socially responsible" pension fund will invest in questionable companies only if they demonstrate a commitment to improve their impact on society and the environment. The fund will begin with £50 million of assets.

Ethical Investment Research Service reports that the amount of money now invested in ethical funds stands at £3.3 billion, up from £2.6 billion in December 1999. That is a 27% increase, compared with a 10% rate of growth for unit trusts as a whole.

And ethical investing doesn't mean having to settle for low returns, the Telegraph pointed out. In fact, the average ethical unit trust has performed better than the average unit trust over both one- and five-year periods. An investment of £1,000 in the average performing ethical trust over five years would have grown into £1,889, 14% more than the average unit trust, which managed £1,632 over the same period.

Within the broad concept of ethical investing a number of options exist. Fund managers can be told to exclude companies involved in specific activities such as arms sales or tobacco. Or they can be instructed to invest only in firms meeting certain positive criteria. Another way of investing is encourage companies to improve their ethical, social and environmental policies.

Many types of religious funds invest according to moral principles, explained a Dec. 14 article published on the site of The There are now at least 22 religious funds, up from one just 10 years ago, according to the Morningstar database.

A recent addition is the Azzad/Dow Jones Ethical Market Fund, launched in October. This fund, together with Amana Funds, invests according to Islamic principles, which require investors to share in profit and loss, to receive no usury or interest, and to avoid investing in companies involved in activities that run counter to Islamic principles. The latter would include businesses involved in pornography, gambling and pork processing. It would also include interest-based banks or financial institutions.

Amana Funds launched its first fund in 1986 and was for a while one of the only U.S. mutual funds to manage money according to Islamic principles. Investment in Islamic mutual funds in the United States has been limited so far—Amana's two funds amount to only $50 million in assets. But an Azzad fund manager hopes to have $100 million in assets under management in the next 12 months.

For Catholics one option is the Aquinas Funds, which invests only in companies that promote Catholic values. Aquinas also participates in shareholder activism, trying to get companies to change their policies to reflect Catholic teachings. Aquinas Funds president Frank Rauscher says the company's areas of interest include issues such as abortion, contraception, gender and race discrimination, military weapons of mass destruction, and affordable housing. One example Rauscher cites is Whirlpool, which he says stopped donating to Planned Parenthood because of pressure from Aquinas.

The number of investment products in the United States designated as ethical more than tripled from 1995 to 1999, and funds in this category grew to $174 billion from $12 billion, according to the Aug. 14 issue of Business Week.

Companies announce ethical guidelines Recently a number of oil and mining companies, long a target of protests both by environmental and human rights groups, proclaimed their support for an initiative aimed at reducing human rights abuses at facilities in developing countries.

Seven leading U.S. and United Kingdom oil and mining companies—Chevron, Texaco, Conoco, BP Amoco, Shell, Rio Tinto, Freeport MacMoran Enron—will follow a series of voluntary principles intended to ensure that companies act to stem abuses by public or private security forces protecting company operations, the Financial Times reported Dec. 21.

In the past, oil and mining companies have come under sharp criticism from human rights groups for killings carried out by security forces in countries such as Nigeria and Colombia. The ethics initiative was launched in 1999 by the U.S. State Department and the British Foreign Office, and is the first time that human rights groups, governments and companies have worked jointly to draft principles for ethical corporate conduct.

Then there is Nokia. The Finnish maker of mobile telephones has announced a project to help children with learning difficulties. The company has entered into a global partnership with the International Youth Foundation, to provide teaching packages to children, and to offer volunteers from its own work force, according to the Financial Times on Dec. 19.
The campaign is operating in South Africa, China, Mexico, Brazil and Germany, as well as in the United Kingdom. Nokia plans to spend $11 million on the campaign during the next three years and says it should help up to 1 million children and young people.

Ethics and business A Financial Times editorial Nov. 7 observed that globalization and the age of the Internet mean that while multinational companies are the norm, their operations are subject to increasing scrutiny. They cannot escape the attention of pressure groups seeking to impose moral standards on their activities.

Moreover, the editorial quoted Mark Malloch Brown, administrator of the U.N. Development Program, who argues that big business, civil society and development agencies have a common interest. This is so, partly because "poor communities make poor markets and poor employees," and partly due to a desire for "good, accountable governance" in developing countries.

By this line of thinking, successful economic development is intimately bound up with the rule of law and the strength of institutions that make for a healthy democratic society. Companies, therefore, increasingly recognize that they have a vested interest in stable, healthy communities. And investors in also need to ensure they are operating in a secure political environment.

Yet, the Financial Times noted, many pressure groups and aid agencies involved in development have grave doubts about the benefits of globalization and the role of multinationals. Many companies, meanwhile, have yet to be convinced that they can or indeed need to cooperate with such partners. ZE01012022  

This article has been selected from the ZENIT Daily Dispatch
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