Why it matters

Money makes the world go round and your finance plays a part in the global economy. By selecting an ethical product or an ethical bank or fund, you can play a part in creating a better world.

What is the point of managing my finances ethically – what impact does it have?

Spokespeople

Alastair Sawday of Sawday Publishing gives his views on why ethical money matters. Alastair Sawday Publishing publishes the well-known Special Places to Stay guides and The Fragile Earth series – campaigning books about the environment, which highlight the perilous state of our world and offer some imaginative and radical solutions.

In 2006 Alastair's company moved into new eco-offices, developed with the help of a Triodos Bank loan. The converted barns are a very green workplace – they include toilets flushed with rainwater, a wood-pellet boiler and an office allotment. Alastair Sawday Publishing is a good example of how a different approach to business can be both commercially successful and have a positive environmental impact.

Alastair Sawday "There are thousands of years of ethical and philosophical pondering in support of the search for the right way to live. So we hardly need to be told to be, generally, 'nice' to others, to help old ladies across the road and to avoid trashing our neighbour's house. Behaving well is hard-wired into our brains and upbringing and it is rare to be asked to justify being 'good'. The vast majority of us choose to be 'good' in our daily lives.

Similarly, we don't generally ask others to do things that we do not approve of ourselves. But when we hand over money in the shape of our investment/savings/pension money to financial institutions how many of us stop to think whether or not it is being put to some purpose we would be unhappy about. Some of our money may be well spent; but some may not. So, the moral imperative is clearly: pay attention to the work your money does. I would turn the question around and ask: why should we allow our money to work to different ethical principles from those we apply to ourselves every day?

As money can do a great deal of hard work it is important that it do the right work. IF enough of us direct our money ethically and wisely, then the impact can be huge. Ethical investment is worth billions in the USA and UK. Billions can be applied to great effect. From where else will the investment for renewable energy, better food and transport systems, better buildings and land-use come? It is likely to be our ethical money which gets us out of trouble - if anything does.

Working with an ethical bank has boosted our own efforts and encouraged us to think carefully about our money."

Examples of the difference it can make

Here are some recent examples where ethical products and providers have sought to push for change in companies they invest in or where they have supported worthwhile projects.

DESTRUCTION OF RAINFORESTS

This example is based on information from the Co-operative Asset Management’s report on engagement activity found here: http://www.co-operative.coop/corporate/Sustainability/social-responsibility/ethical-finance/The-Co-operative-Bank-engagement/

What's the Issue?

Concern over a logging company which had been denounced for the destruction of tropical rainforests in Borneo and a history of conflict with indigenous people.

What engagement took place?

In May 2008 the Co-operative Asset Management wrote to the Chairman of one of the companies it invests in, the HSBC Group, to highlight the conflict between HSBC’s responsible lending policy and its involvement with the Malaysian logging company Samling Global Ltd, which was believed to have had its Forest Stewardship Council Certification rescinded in Guyana.

What's the Outcome?

The Co-operative advised HSBC that its longstanding relationship with Samling Global Limited presented a potential conflict with its guidelines. According to the Co-operative, in 2008 HSBC indicated its intention to remove facilities from companies of concern.

ANIMAL TESTING

This example is taken from Triodos and can be found in their research news here: http://www.triodos.com/com/triodos_research/215857/216040/metro

 What's the Issue?

Although a European-wide ban on animal testing of cosmetic ingredients came into force in March 2009, many animals still endure experiments for the testing of household products and ingredients.

What engagement took place?

Triodos entered into dialogue with various companies on numerous issues. One of those was Metro on its lack of a formal policy on animal testing.

What's the outcome?

Whilst Metro had since 2001 only used ingredients and recipes that did not require animal testing for its private label personal care products and Metro did not intend to test on animals in the future, Triodos’ engagement encouraged it to develop a formal policy statement on animal testing.

OIL SANDS

This example is taken from The Co-operative Asset Management's 'Responsible Investment Annual Review 2008'

What's the Issue?

The oil sands in Alberta, Canada, are the largest source of unconventional oil. Use of this resource involves strip-mining and an energy intensive process for bitumen extraction. Indeed, extracting from this source is thought to be on average several times more carbon intensive than for conventional oil. Indigenous communities also have rights to land here and there is the potential for long-term damage to the natural ecosystem.

What engagement took place?

The Co-operative Asset Management wrote a letter, backed by 44 institutional investors, to the primary companies involved in the extraction and to the Federal State regulators. The Co-operative, with their investors, is engaging with the oil companies, letting them know their concerns, asking for greater disclosure on risk management in unconventional oil, asking for caution on unconventional oil and setting out minimum standards of operation in relation to environmental and social issues.

What's the outcome?

So far $3 trillion of managed assets backed the letter sent. Through engagement, this investor coalition is hoping for positive commitments from the oil companies.

How does this fit with me?

A good place to start is to think about what is important to you and, given the increasing choice of ethical finance products available, what approach you want to take, whether it is avoiding or supporting particular companies, or encouraging companies to change their behaviour for the better.

If you want to probe your own thoughts on ethical finance, here's a quick list of probing issues to help you do so:

1.What issues do you care most about and would like your personal finances to do something about?

For example, what about the production of weapons / armaments, animal testing, nuclear power, mining, climate change, human rights or gambling?

2.How far would you be prepared to avoid companies whose activities you disapprove of?

For example, could you manage to avoid such companies completely or just in part by investing only those who are involved to a limited extent? Or would you want to avoid only those companies that use irresponsible marketing campaigns?

3.Would the purpose of a company's product affect whether you would want to invest in the company?

For example, take the issue of producing weapons and armaments, is there a difference for you between a company selling weapons to the UK to defend itself against aggressors, a company selling weapons to a third world country under attack from an aggressor, or a company selling weapons to an oppressive or aggressive regime? Or would investing in any military or armaments company be against your principles?

4.How would you feel about an uncontroversial product being used for controversial purposes?

Take the issue of military and armaments - what would you do about a house-building company that also constructs army barracks, a technology company that manufactures headphones (used by the military), or a cereal manufacturer that has a contract to supply breakfast cereals to the armed forces?

5.Does the percentage of a company's business related to an issue affect whether you would want to invest in them?

For example, if you feel strongly about animal testing, how would you feel about a company 80% of whose business comes from cosmetic products tested on animals, compared to a company where only 25% was from cosmetic products tested on animals, or company with less than 10% of its revenue from such products, who has invested in alternative non-animal tested methods, but historically has used animal testing on all its products?

6.Is the environment an important issue to you? How strongly do you feel about a company's environmental record?

Would you want to avoid all oil companies, invest in those oil companies that have a better track record on environmental issues compared to others, or invest only in those companies exploring new forms of energy and reducing their own carbon footprint?

7.Does climate change matter to you? There are many proposed ways of solving it out there, like many of the pressing issues today, but the answers are not straightforward.

Would you want your money to be invested in a provider of nuclear power? Or how about a manufacturer of luxury performance cars, even if they had a robust published policy on climate change? What about investing in an airline? Is there a difference for you if it is a low-cost airline?

8.What do you think about the causes of the credit crunch?

Would you be happy if your money was invested in none of the banks or lenders?

Would you be content if your money was invested in banks and financial companies?

What about if it was a wide-range of financial companies including those doing doorstep lending?

9.Where would you draw the line on the issue of energy supply?

Would you invest in a fund that bought shares in an energy supplier committed to exploring energy efficiency and renewable energy?

Would you only invest in a traditional energy supplier if it was better than any others at investing in renewable energy?

Or would you avoid investing in any of the major energy suppliers, but instead invest directly in renewable energy producers?

The list of issues is based on the questionnaire by Sarah Pennells, freelance personal finance journalist, taken with permission from chapter 2 of her book, ‘Financial Intelligence: Green Money; How to Save and Invest Ethically’, (The Guardian, A&C Black Publishers Ltd, 2009)