 Maggie Fleming looks at the issue of ethical investments and ethical consumerism.
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Ethical concerns are something that leading companies now have to take account of when they make business decisions. It wasn’t always this way but the rise of ethical consumerism means that, if they don’t consider the ethical dimension, they’ll find themselves with, at the least, some very negative publicity. At worst, they could end up being boycotted and seeing their sales and share price slump.
It’s happened to various oil companies who’ve been responsible for environmental damage or doing business with repressive regimes. It’s happened to supermarkets who stocked GM products. It’s happened to Nike and the Gap and Starbucks. Recently it’s happened to Baroness O’Cathain who found herself off the board of BA after pressure was applied by Stonewall and gay consumers. It’s happening at present to Heinz – US right wingers are boycotting those 57 varieties because John Kerry’s wife, Teresa, owns a large slice of the company. Instead they’re putting ‘W’ brand ketchup on their ‘freedom’ fries.
If consumers don’t like what your business is doing, they’ll go elsewhere. Or they’ll buy a share in your company and turn up at your AGM asking difficult questions.
And it doesn’t just stop there. Changes in pensions legislation a few years ago meant that members of employers’ pension schemes can quiz the trustees about their attitude to ethical investment. The trustees don’t have to adopt an ethical policy as a result but it does add to the pressure to make ethical investments.
Most of the shares of large companies are not owned by individuals but by institutions – pension funds and investment funds. It is important for a company that its major investors are happy. This is where ethical investment and pension funds can play an important role. If a fund owns a substantial part of a company and presses it to change its policies in a socially-responsible direction, that company listens.
There are different types of socially-responsible funds. There are strict ethical funds, such as the Friends Provident Stewardship funds run by their fund managers, F&C Asset Management. These adopt negative criteria – if a company does not match up to these, they do not invest in it.
But they have other funds which do invest in companies that are less than perfect. And here the aim is to persuade that company to adopt better policies.
Take, for example, Wal-Mart, the huge US grocery retailer with more than a few flaws. F&C are investors in Wal-Mart and, for two years, they pressed the company to introduce a policy prohibiting discrimination in hiring, firing and promotion based on sexual orientation. Although the company rejected this idea initially, F&C persisted and Wal-Mart finally gave in. This is just one example of how the policy of investing in companies that aren’t perfect and persuading them to clean up their act gets results.
Or look at Coca-Cola. F&C has been in talks with Coca-Cola about its policies regarding HIV/AIDS issues. Coca-Cola has been tackling the issue within its workforce, focusing particularly on its African operations. It now offers prevention awareness programmes, voluntary testing and counselling and anti-retroviral treatment to all 1200 employees and their dependants.
These are just examples of how investing in ethical funds can make a difference. This is shareholder activism on a large scale and we are going to see a lot more of it in the future.
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