What is socially responsible or ethical investing? Róise McGagh writes how the ordinary person can drive change
The environment has been a topic that has really been heating up over the last couple of years. Protecting the planet is a value that many hold dear, including Pope Francis. LaudatoSí’ outlines the importance of the issue in detail, and in Ireland with the Fridays for Future, Friends of the Earth, Christian Aid and many more campaigning for action, things are slowly beginning to change.
You might notice a few more reusable bottles sitting around tables in the office, or that the neighbours have recently installed an electric car charger on the house. Everyone has begun to make their small effort.
This can come with a lot of pressure, making a change from the ground up is no easy task. Of course, you want to be able to do as much as you can. Reusing and recycling is manageable; however, buying products that are locally sourced, organic, fair-trade, vegan, zero waste, and ethically sourced that also suits your budget is a lot more difficult. It might not be possible all the time.
The Jesuits in Ireland recently announced that they are focusing on aiding the world’s switch from fossil fuels to renewable energy by divesting from companies lagging in this area and investing in oil companies that are transitioning to renewables. Could this be an innovative way of making a change for the better?
The International Energy Agency estimated in 2014 that $37 trillion of investment will be needed in the world energy supply in order to move from fossil to mostly renewable energy by 2035.
The Jesuits reasoned that current governments or new investors aren’t likely to be able to put up this amount of money so a large amount of it will have to come from the oil companies themselves. Many large companies have already committed to transition from fossil fuel to renewable energies such as Total, Shell, BP, Eni, and Statoil. In 2011 Total spent €1.4 billion acquiring a 60% majority stake in US solar specialist SunPower.
Fr Arturo Sosa SJ said: “Every Jesuit Province around the world is responding to this call in ways they discern to be fruitful for ‘caring for the earth, our common home’.” They feel they maintain more leverage in promoting the switch to renewable energy.
This is a very interesting idea, that not only can you influence the world through your personal life choices, but you can also back larger organisations that actively drive the change you wish to see from the top down – as well as reaping some benefit.
Renewable energy investment is just one example of something that could fall under ethical investments or Socially Responsible Investment (SRI). It is not very popular in Ireland at the minute but is, in fact, not something very new at all.
Shariah-compliant funds are investment funds that follow the requirements of Shariah law and the principles of the Muslim religion. Developed around the 1960s the funds are considered to be in the category of SRI as they screen potential portfolio investments for requirements desired by followers of the Muslim religion. These requirements include the exclusion of investments which gain a majority of their income from alcohol sales, pork products, pornography, gambling or weapons. Shariah-compliant funds can also include an appointed Shariah board, a yearly Shariah audit and purifying certain prohibited income, such as interest, by donating them to a charity. Debt is shunned in the Muslim world, so they have tried to create a financial plan without bonds.
“One of the most well established and quite successful ethical investment funds in Ireland, which is kind of reasonably mainstream comes from Friends First which is obviously Quaker in origin so it stems from Christian sort of starting point as well,” says Ralph Benson, co-founder and head of financial advice at Moneycube, an Irish investment intermediary company.
Most investment funds in Ireland are signed up to the United Nations (UN) Global Compact, which is a baseline of ten principles on human rights, labour, environment and anti-corruption.
However, you can easily go beyond this baseline by underpinning investments with your own set of values. Above that investments can be made in ‘make a difference stuff’, into funds that perhaps focus on advancing women through gender diversity in senior leadership positions, lowering carbon exposure, or helping social issues.
These kinds of SRI funds that aim to positively impact the world are more established in the US and the UK. This may be why the Jesuits are leaders in Ireland, they have the partnership of their UK cohorts who have equity investments of around £400 million used to finance works and projects in Britain and around the world. They began divesting these funds from fossil fuels in 2018.
“You can tell that the fund providers in Ireland recognise that this is the direction to travel in,” says Ralph. People who are close to retirement tend to have more large sums of money. However, this push is coming from a younger generation which might be why it is taking a longer for life insurance companies to open up SRIs as options.
As well as being ethically led, many people in their 30s realise that it’s risky at their age to be pushing your money into an oil and gas firms. Ralph explains how there is the potential for things to look very different in 30 years’ time,“So this is not just ‘snowflake’ millennial stuff, it’s also hard-headed financial thinking if you’re at that stage in your life”.
Charities are also coming under pressure to – and many of them want to – invest their staff’s pensions into companies that fall in line with the ethical standards they have set. Due to increased levels of transparency for funds, companies and charities, it is expected of them and is also a lot easier for them to be aware of where all of their money is going and how it is used.
“You are sort of expected to pay a premium for it (SRI) so that it costs more, and it really shouldn’t,” says Ralph.
“In Ireland since the global financial crisis people are much more engaged with their money, they don’t necessarily just trust experts to do it all for them. They want to understand what it’s invested in and that’s the general mood.”
Internationally, most investment companies charge a very small amount more for SRI funds than others but in Ireland the price is hiked to almost double of that.
“I would say there is very little evidence to say that you are sacrificing because of your decision to invest ethically. You can certainly make money by doing this, you can certainly avoid risks,” says Ralph. The old rules still apply to these different kinds of investments too; make sure you’re not overexposed in one sector, invest in a measured way over time and keep control of any costs.
This could be a way to make an impact on the issues, companies or ideas you feel passionate about from the top down rather than the ground up. Of course, not everyone is totally literate in how to invest in these kinds of funds, or any for that matter. But if you are regularly putting money into somewhere to be invested, like a retirement or life insurance company, it may be worth it for you to inquire into whether there is the option to choose where exactly your money is invested.
So maybe reusable bottles, electric cars and diet changes aren’t the only ways that we can be the change we wish to see.
