Tech-savvy Millennial generation prompts evolution of ethical investment
While ethical investment really took off around 25 years ago, ethics and investments have existed for centuries. As far back as 1602, the first company to issue shares, the Dutch East India Company, faced boycotts from religious institutions because of its involvement in the slave trade. This boycott failed then for the same reason that demand for values-based investment is growing today; that being the ownership of listed companies. The market was once owned by a few wealthy individuals, but today the markets are largely owned by pension funds representing millions of individuals.
Ethical investment grew in popularity in the 1990s, with many investment companies launching a variety of ethical investment products. Most of these applied ethical screens which prevent investment in companies involved in certain activities, such as tobacco companies or companies involved in animal testing. While there are still plenty of investors who want hard screens, investors have also become more complex in their requirements. Over the last decade, this has resulted in a rise of socially responsible investment funds which focused more on investing in companies demonstrating good corporate behaviour on sustainability issues, such as their environmental impact or how they treat their employees. This included sustainability-themed funds too, such as climate change or water funds.
Today, we continue to see views of those seeking more values-based investment options evolve and mature. This is particularly so with the newest generation just coming into the workplace. The Millennials have grown up in a time of significant technological advancement, earning themselves the nickname, digital natives. As such, they have access to information in a way previous generations have not and this has shaped their view of the world. They are very aware of how the world can be unjust and unfair. Issues of environmental resource constraints, climate change, modern slavery and evidence of poor corporate behaviour are easily shared through technology. This is affecting their perceptions of where they want their money invested. During 2015 Good Money Week (a national campaign run by the UK Sustainable Investment and Finance Association), a Standard Life Investments survey indicated that the younger the investor, the more likely they were to hold some green, ethical or sustainable investment product.
Today's values-based investors want the companies in which they are invested to contribute positively towards the environment and society, through the way those companies behave, the products they create or the services they offer. In other words, investors are increasingly looking for the positive impacts from their investments, in addition to the traditional "avoidance" screens. Standard Life Investments' annual ethical investment survey has shown its own ethical investors are now rating positive criteria just as importantly as negative ones.
So how can investors measure the positive contribution companies can make to society? One way is to use well-established global principles or norms, such as the UN's Sustainable Development Goals. These goals were launched in 2015, and are an increasingly popular set of tools to assess and measure companies against. These goals are designed as part of a plan of action for governments, companies and civil society, working towards eradicating poverty in all its forms. Given governments have committed to these goals; they provide an essential link between common economic policy and the finance industry. These goals address 17 of the most pressing challenges facing society and the environment.
With values-based investors increasingly seeking positive impacts from the companies in which they are invested, measuring company impact against these goals is a good starting point. Recently we have seen a rise in the number of impact investment products where investors are seeking both a positive financial return and a social return. It is important for investors to understand though, as with all the different values-based investment options now available, there will be differences between what is deemed an impact.
Values-based investment options have evolved over time, from ethical investment, to sustainable and responsible investment and now impact investment. The ideas are not new, they have just evolved. Some of the best new ideas are old ones that have been rediscovered.
A Native American Proverb: We have not inherited the world, we have borrowed it from our children
Amanda Young, Head of Responsible Investment, Standard Life Investments
First published in Sunday Herald 29th October 2016.