UPfront Are you ethically invested?

If funds in your investments portfolio help support companies that run Asian sweatshops, pollute rivers or ride roughshod over local community welfare, would you know? And, if it comes to that, should you care?
Shareholders worldwide are taking more active part in shaping company behaviour by shunning investment in corporates that don’t show smidgen of social, environmental and moral responsibility. This skew of investor interest has accelerated with recurring revelations of executive excesses that led to company collapses and shattered shareprices.
New Zealand, however, is lagging in terms of defining the parameters of socially responsible investment (SRI) or identifying and validating corporate behaviour.
We’re “trusting backwater” assuming someone else will do the hard work, says Robert Howell, who chairs the recently established Council for Socially Responsible Investment (CSRI).
The Council aims to help find framework for local investors to assure themselves that the organisations they’re putting their hard-earned dough into (or those in which their government or churches invest) are acting responsibly. On the way through, it also hopes to establish new market for New Zealand investors and investment in which SRI is guaranteed.
Howell told an inaugural conference last month that one of the problems with SRI is the lack of agreement over what constitutes socially responsible organisation or how various components of the definition might be weighted. “Sometimes it is seen as little more than financial gifting… I’m not convinced corporate giving [sponsorships etc] is necessary quality of socially responsible organisation and even if it is, it’s far less important than other factors,” he said.
An OECD report, which reviewed 246 codes of corporate conduct, found significant divergence in the scope and nature of the commitments they contained. For instance, in the labour content, less than half dealt with ‘no child labour’, only 10 percent made reference to ILO codes.
Howell regards definitions as crucial and says the CSRI has set up committee to advise on the definitions and criteria for socially responsible organisation. He also suggests independent audits are needed to separate out genuine SR from corporate PR. “The recent Christian Aid report [Behind the Mask: the real face of corporate social responsibility] highlighted for me the need for bodies such as ours to comment independently from management controlled exercises.”
The appropriate way to do that is through the ownership (shareholder) network – following examples set by big investors such as UK pension fund Hermes. “In terms of governance stance, they’ve taken very active role in trying to ensure the investments they have with number of companies will be there in 15 to 20 years’ time when the real demand for pension payouts comes on. They work on behalf of the pension fund as owners of stock and can provide some good examples of where they’ve been able to benefit shareholders,” says Howell.