One common approach in ethical financial management is to engage in negative screening. This involves selecting industries and areas that you definitely do not want to be involved with such as gambling or the arms industry. As ethical investing becomes more popular, the list of potential concerns is quite extensive. If you are currently looking to adopt an ethical approach to your finances, you have probably already got some areas that you want to exclude. If not, here are some of the popular ‘no-go’ areas for many ethical investors and some of the concerns that they prompt.
Third World Debt
Is there a commitment to helping third world countries tackle their debt crises? Some banks have a history of lending to poor countries, who then use it to buy things like arms.
Banks may choose to not be involved in lending directly to companies involved in the arms trade or who are involved in supplying arms to regimes but this does not necessarily mean that they have no involvement in the arms trade. In some cases, banks may allow investment in this area on a case-by-case basis.
Some banks will happily lend to companies with poor working conditions and/or who are not against child labor so if this is something that you feel strongly about, you will not want to support financial institutions with this type of lending practice.
Many investors now want to know that they are supporting a bank which cares about the environment. Some banks have previously lent money which has gone on to pay for rainforest deforestation. Supporting environmental issues may involve restricting their lending solely to companies who benefit the environment but it will may also extend to encouraging their creditors to take steps to benefit the environment such as saving energy and reducing emissions.
Are you against animal testing full stop or are you happy to support a company who conducts animal testing solely for medical reasons?
If you are a non-smoker, you may not be happy to know that your money is being used to support this industry.
If you are religious (and even if you are not), inadvertently supporting companies who are involved in or promote gambling will not sit right with you. The same may also be true of pornography.
Some companies have a strong commitment to supporting charities. This may be for national charities but some financial institutions may also encourage staff to get involved in local causes and may match funds raised.
Social and Financial Exclusion
There are still millions of people who do not have access to even basic financial products that most of us take for granted, such as bank accounts. Unsurprisingly, this can have a major impact on their day-to-day lives and many live in deprivation as a result. Does your bank take any steps to tackle this problem or are they actually contributing to the situation? For example, do they advertise directly to sections of society who are vulnerable to debt problems? This can be a problem for credit card companies, who do not always act in a ethical manner when looking to hook new customers.
This is based on similar principles to ethical financial management. Shariah (Islamic law) seeks to protect the five fundamental aspects of Islamic society – faith, life, wealth, intellect and prosperity. To this effect, companies whose activities do not fit this are screened out, which typically means that the likes of alcohol, tobacco, gambling, arms and pornography are out of the question. Under Shariah, you cannot receive interest but you can receive dividends on shares. Islamic banking is available through Islamic institutions but also through some Western banks.
As you can see there are various questions you can ask and areas you can look into to determine how ethical a potential investment might be. I always recommend you do thorough research prior to purchasing an investment so that you can sleep well at night knowing you aren’t supporting anything you feel strongly against. It may take some time but it is worth it in the end.
So, do you invest with ethics in mind? What kinds of things are you against?