How to Invest Ethically: Part Three

Originally published in 'Challenge Magazine' 2005

By the Right Rev. Dr. Jo Seoka, chairperson Bench Marks Foundation.

The notion of applying ethics to investments dates back to the 17th century. Today economic globalisation allows investors to move money around the world with the click of a mouse. The WTO rules allow for the free flow of capital with few social, economic or environmental constraints. Return on investment is often the only criteria. Technological advances, whilst good for some segments of the world's population, have disastrous effects on others, uprooting them and doing away with jobs.

Non-financial risk is seldom considered, yet in a globalising economy investors have a responsibility to do so. Investment in one specific place can impact on the lives of people and cultures in several different parts of the world. It can also affect the environment and contribute to climate change or even become a threat to the livelihood of future generations.

Investments can create or reduce employment, respond to basic needs or change patterns of consumption, transfer technologies or move populations, enrich or impoverish nations, redistribute or concentrate wealth. This indicates a direct relationship between investments and the social and environmental well-being of all.

The deterioration of the environment, the growing social inequalities between rich and poor in countries and between nations, and the liberalisation of trade and finance and the weakening regulatory role of States calls for a new investment ethic. One of the most damaging aspects of globalisation and technology development is unemployment and underemployment, with the consequent effects of violence and crime that threaten social peace. Poverty, social economic exclusion, and environmental effects have raised the ethical consciousness of many.

In South Africa we have experienced huge environmental impacts. Thor Chemicals a British multinational company operating at Cato Ridge KwaZulu Natal, for example, allowed mercury waste to contaminate the Mngweni River seriously affecting the health of surrounding communities. We also experience exhorbitant salaries of some whilst others survive on 'slave' wages.

Often corporations sponsor works of charity but fail to look at the impact of their operations on employees, surrounding communities, and the developmental needs of the country. Enormous investments in new technologies to improve the standard of living or quality of life, neglect large parts of the population who lose their jobs and their dignity. Investments that ignore the needs and the specific context of each country as well as the enormous inequalities between and within nations only lead to further violence and confrontation.

Different approaches

The first-generation approach to the ethical investment was to set up negative criteria - what not to invest in. The second-generation approach established positive criteria that encourage and promote good investment.

The third-generation investment ethic: takes into account all those affected by investment choices. It emphasises a responsibility to consider the investment needed in each country and to continuously define the macro and micro economic investment criteria that suits the ongoing development of that country. This could involve an electrification programme to provide cheap power, reduce crime and resolve paraffin and related burns.

Another approach would be to engage corporations through shareholder activism, to promote, for example, responsible practices around HIV and AIDS, economic empowerment, and gender concerns.

Whilst business is allowed to invest and make profits, it must do this in a manner that is not harmful to society, that protects human dignity and the common good of society. This can be achieved by either selecting fund managers according to ethical criteria, or by investing directly in corporations.

In the next edition we will explore these different approaches in more detail.