You don't have to be impoverished in order to have good intentions. Superannuation pay-outs, luck at the lottery, an inheritance or just an unusually well-paying job can happen to people concerned about the environment, peace, an end to discrimination or other progressive issues. Is it possible to increase such a nest egg without becoming part of the problem? REIHANA MOHIDEEN talked to ROBERT ROSEN, director of social and environmental research at Money Matters, a Sydney consulting firm specialising in ethical investment.
What can ethical investment achieve in terms of changing basic social structures?
What underlies basic social structures, particularly the corporate and financial structures, is belief systems around money. One of those critical beliefs is that it is against the whole business and free market structure to apply your personal values to your investment decisions. Ethical investment undermines and questions those belief systems.
Milton Friedman in particular pushed the line that you should leave these things up to the marketplace, that money should be able to run freely purely on the basis of supply and demand. When investors start to say that they don't only want to maximise profit but also want to invest for ethical reasons, it starts creating fundamental changes in the system.
We have incredible double standards around money and business in general. The business executive when he is home with his children in the morning can be a very ethical, responsible father and very cooperative. But the moment he walks out the door and hops into his Mercedes Benz, he has a different set of values that are competitive, aggressive and destructive. We're questioning this duality, which is not working even for those who are able to accumulate more capital.
When there is a fundamental breakdown in the environmental system, corporations suffer as well as the rest of the community. The normal approach with investors is that you maximise profit, which means that it's much more efficient to fish out all the whales, and then go and wipe out all the rainforests, than to have sustainable whaling and forestry.
But ultimately you run out of things to invest in: i.e. you run out of things to rip off, so that you have to look more seriously at sustainability.
The socialist critique of production under capitalism is that it is inevitably alienating. Are you saying that ethical investment overcomes this alienation?
I think it reduces it. If you don't have capitalists who hold certain basic social values, then the system will always break down. Any structure will break down unless people as individuals have a genuine, caring concern for others, irrespective of whether it's a socialist or capitalist system. I tend to look very pragmatically in terms of the here and now. This is the world I live in: how can I change it for the best in a practical, realistic way?
What implications would this have in terms of democratising existing social structures?
A good example is superannuation. The money is collected and controlled by the private sector. If this money is controlled democratically by the people who are supposed to receive the ultimate benefits, it is more likely to have a better effect on the society than if it's controlled by a group of experts or bureaucrats and a small number of fund managers.
The argument always is that these fund managers handle the money for the benefit of the members or beneficiaries. Our view is that a lot of their members are very concerned about the social and environmental effects of that money. It is far more democratic if they can have a say in the way that the money is invested, not only that it be invested efficiently and safely but also in a way that is environmentally and socially responsible.
This is particularly the case with retirement money. What is the good of getting your million bucks in the year 2010 and finding that when you go out you're covered in acid rain?
Do you see ethical investment as being an extension of the social movements?
It's more complex than that. As advisers, we don't make any judgments ourselves about what's ethical; we see ourselves more as allowing individuals to express their concerns. It's about individual empowerment. Underlying this is a belief that people are fundamentally good if they are given a chance to be that way.
What are the ethical criteria?
The environment is the major concern, and after the Gulf War there is an increasing concern with military activities. It's often the one or two views that people hold most strongly that bring them to action. But when they look at it more deeply, they realise how deeply connected all the issues really are.
The first thing we'd look at is the activities that companies are in. Do they make armaments? Do they make chemicals? The next thing is how they carry out those activities: have they got a bad pollution record, have they been fined, are major environment groups objecting?
We also look at their labor relations and the way the companies are managed, i.e. whether information can flow up through the companies. We look at their attitudes toward women, their attitudes toward the communities they live in.
A lot of the larger companies in Australia are very diversified, so often it is hard to get a very accurate picture.
We look at the size of things, because we believe it's very important to support small companies and small industries. We're concerned when companies are being aggressively competitive or restricting competition.
What sort of people invest ethically?
They're certainly not all "greenies". It's retired people who haven't had an active background, self-made business people — a real cross section of the community. They tend to be people who want to express their concern, but they're often not front-line activists. Your front-line activists are generally pretty poor.
What would the average investment be?
Money Matters has two services. We have a management service, which is for larger investors, in which we manage their money actively. The average in that is about $200,000. The average inquiry in general would be around $20,000 to $40,000. With the very small investments, we give them casual advice over the phone.
What particular services does Money Matters offer?
We think we are particularly good at research into company activities and at helping people express their personal values in their investment policy.
We have done a lot of looking at different forms of legal structures. We also look at the size of the companies. We are finding more and more that ethical investment can be expressed in smaller companies rather then larger companies. We bring that research to bear together with what we see as a high standard of conventional investment advice.
We've isolated a smaller number of companies and a smaller number of investment products that look to be much better choices. We can't possibly keep track of all the activities of the broad range of companies, but we do have a working knowledge of what the major Australian companies are doing.
What sort of range is there for ethical investment?
The range has to be balanced with risk. Most investors aren't interested in the high-risk area. Often what we're looking at is intermediary financial organisations. Some of the community groupings and a very small number of trusts fall into this category.
We also look at a whole range of conventional investment vehicles, from listed public companies to superannuation schemes to building societies, and analyse those in terms of a range of social and environmental issues. So if someone comes along with an existing investment portfolio, we can say that this trust invests in these companies and these companies do these sorts of things that are relevant to your concerns.
But there is still a dearth of really high quality, appropriate investment vehicles. One of the things I'm interested in is developing other investment vehicles. That is in the area of workers' cooperatives, hardwood reforestation, rural development and so on. Currently there are no opportunities for investing in rural development where they're using sustainable agriculture.
In conjunction with a firm of managers, we have set up a superannuation fund called Earthrise. We think it's going to work. Our first client for that was Greenpeace Australia. Obviously they couldn't invest in the conventional superannuation scheme. It would to have Greenpeace protesting at outlets at BHP plants and have the media pointing out that all their employees were investing in BHP.
There are big amounts of money in the industry superannuation schemes. If what we're doing can be proved financially successful, then other people will get on the band wagon. The major investment fund managers have no objection to ethical investment except that they don't consider it viable.
Does it cost to invest money ethically?
The answer really depends on your level of ethical criteria. If you take a very strong, rigid set of criteria, it can be extremely difficult to get a reasonable rate of return with a reasonable level of security. But if you're willing to have a reasonable balance between your financial needs and your ethical needs, we find most clients are doing quite well.
Risk has got a lot to do with the level of trust among people. Size isn't necessarily safe. If people lend their money out in a small, socially supportive community, there's a lot lower level of risk, if it's properly managed, than lending your money to a large bank.