How do we build a fairer and more sustainable economy? Part of the answer lies with the money we invest in pensions, ISAs and investment funds, writes Sophie Tease of FairPensions
A lot of the money we pay in is used to buy shares in companies, making institutional investors some of the largest shareholders out there. As owners, they have the power to change how these companies behave.
Despite their tremendous power, these investors receive little scrutiny. FairPensions is one of the few organisations peering into this complex and opaque universe, attempting to find out what is being done with our money.
Our latest research looks at ethical fund providers. If you chose an ethical option on your workplace or personal pension – or if you’ve put some of your savings in an ethical fund – it is likely your money is with one of the providers we surveyed.
These funds are aimed at people who want their money to reflect their values.
But the big question is: do they actually make the world a better place?
The ethical funds we looked at are worth about £6.5 billion and could be very influential. They are ideally placed to lead changes in corporate culture. Mainstream shareholders tend to challenge companies on their behaviour only when it poses financial risks. But ethical funds can challenge bad behaviour for its own sake.
However, most ethical providers are not taking up this mantle. Most continue to see their role as limited to screening out a select few companies or sectors. And these screens aren’t even keeping up with today’s ethical concerns. The traditional ‘sin stocks’ of gambling, porn and nuclear continue to dominate, with today’s concerns about labour standards, human rights and environmental protection poorly reflected.
See Table 1:
If you make the decision to invest ethically, you want to know exactly where your money’s going – yet nearly half of providers don’t publish a full list of the companies they hold.
You want a fund that at least partially reflects your values. Most providers don’t really bother trying to find out what their customers care about. You also want to know your money is having a positive effect in the real world. But two thirds of providers are not trying to improve corporate behaviour.
Stopping at screening is increasingly outdated, yet it is still the dominant approach. Today’s ethical concerns are overarching and complex, applicable to many (if not all) sectors and requiring ongoing attention. They can’t be dealt with simply by screening out the ‘bad guys’ – yet most providers seem stuck in this mindset.
On the other hand, there are some providers who really show what can be achieved. They use their clout as investors to improve the behaviour of some of the world’s biggest companies.
This includes using the power of our money to reduce pollution, improve animal welfare standards and prevent banks funding cluster bomb and landmine production. These providers genuinely try to understand their customers’ values and reflect these in their approach.
For many people the decision where to invest your money can be fraught with ethical dilemmas. On our website we try and help by ranking ethical funds on how responsive and engaged they are, both with their customers and the companies they invest in. If you want your ‘ethical’ investments to do more than help you sleep at night then you might want to take a look.
The full ranking is available at www.fairpensions.org.uk/ethicalfunds along with recommendations for each provider about how they can improve.