(Article for the Jakarta Globe – 13 Aug 2012 issue)
MONEY WISEETHICAL INVESTING – IS THIS THE WAY WE SHOULD GO?
A while ago at an investment seminar in Bali a fund manager from London
was expounding the virtues of the stocks he held in his fund. When hementioned one of these was an international tobacco company a lady in theaudience stood up and told him he should be ashamed of himself. She
explained that her husband had recently died as a direct result of a lifetime ofsmoking. The somewhat shaken fund manager had come face to face with
the issue of ethics in investing.
This is not a new subject
In fact, socially responsible investing, or SRI, dates back to 1798 when theQuakers prohibited members from participating in the slave trade. In more
recent decades protesters have campaigned against polluting chemicalcompanies, demonstrated against companies operating in South Africa during
apartheid and have had a considerable influence on the activities and evenfinancial standing of many enterprises.
As a general rule, socially responsible investors support corporate practices
that promote environmental awareness, consumer protection and humanrights and avoid any company involved in alcohol, tobacco, gambling orweapons. The value of the ethical investment industry is now estimated at
US$55 billion, although it still represents less than 0.5% of the total fundindustry.
Let’s take a closer look at some of the targets that we are told should beavoided.
Alcohol – Social Asset or Demonic Brew?
Each will have his or her opinion here. Religious groups throughout history
have periodically condemned alcohol as the drink of the devil. There is plentyof evidence to support that position! On the other hand, most will probably
argue that responsible drinking can add to the quality of life and indeed themedical industry even states that moderate drinking (equivalent to just one or
two glasses of wine a day) is actually beneficial to health.
Smoking – once fashionable, now disgraced
Remember the old Hollywood films with the hero puffing away close to a
subtly-placed cigarette packet with the brand name clearly visible? But times
have changed; the old macho image has been replaced by that of a forlorn
group of outcasts condemned to a small glass cage in airport terminals. Yet
tobacco is still huge business, particularly in countries like China and Indonesia.
Easy to criticize the tobacco industry but if it were shut down the livelihood of
millions of people would be destroyed. Of course, there is an argument thatworkers could be redeployed to produce more useful crops but it would take amassive effort and a huge culture shift to achieve this.
The arms industry
There is no question that weapons in the wrong hands can cause death anddestruction in the world. The American love of guns is the cause of thousandsof deaths each year, the incident at a cinema in Colorado being the latest
example. Yet proponents of the gun lobby will argue that it is the right of every
American to own a gun to defend himself and his family. And in the larger scaleof things, would you really want to live in a country that could not defend
itself?
But where and how do you draw the line?
Should you invest in oil or mining companies considering the damage they doto the environment? But if everyone stops investing in oil where will we find
fuel for our cars and all the other products that come from oil? There was aBBC documentary last week about the exploitation of children in the Congo in
the production of gold. Should we stop using or investing in gold? Not as easy
as it seems; gold is used extensively in most of the electronic gadgets we usedaily.
Wish to avoid companies with poor corporate governance? What about thebanking industry with its recent scandals of market speculation, interest rate
manipulation and massive money-laundering? But how could we live without
the banks?

Would you object to litigation funding on ethical grounds? If you did you could
be depriving the small guy of the only opportunity he has to seek justiceagainst the big guys.
What about forestry? Would you invest in an industry that encourages thedestruction of vast tracts of rainforest to produce palm oil which does not evenprovide a hungry world with food? Yet there are many forestry products likebamboo which are renewable and environmentally friendly.
The case for ethical investing is a complex one
While it might be a better world without smokers, gamblers, drunks,murderers or irresponsible corporations, there is a big downside and people
will continue to demand freedom of choice and right of employment.
Oh yes, and there is one other consideration; ethical funds generally
underperform conventional funds as they are prevented from investing in thesome of the most profitable companies. This factor can often put to the test
the level of resolve to support ethical principles!
But if you have a personal issue and a strong case, such as that of the lady inthe seminar, by all means stick to your principles and invest or not invest
accordingly.
Colin Bloodworth

PPi Indonesia