With all the corruption and graft making headlines daily in our country, you’d be forgiven for assuming there’s no such thing as ethical investing. But is that the case?
In a world where our environmental and social ethics are continually challenged, many people have begun to question how their precious financial investments are being used. While we all want to build wealth and save for retirement, it’s not always clear whether our hardearned money’s being used for good by the people to whom we’ve entrusted it. As consumers demand to know and decide what’s done with their money, there’s been a rise in investment opportunities that not only make a positive impact, but offer good returns. But finding these options isn’t easy – particularly for private individuals or “retail investors”.
BEWARE OF GREENWASHING
Many financial institutions use the terms “ethical”, “responsible” or “sustainable” to describe portfolios which have incorporated environmental, social and governance (ESG) criteria into their investment screening processes.
However, long-time analyst Mike Davies from Kigoda Consulting warns consumers to pay close attention to how institutions apply these ESG principles in practice. Kigoda Consulting, which specialises in research and analysis issues affecting sustainable investment across sub-Saharan Africa, has found much evidence of “greenwashing” in the way funds approach the issue. “Greenwashing normally refers to a company using clever marketing tactics to show itself in a favourable environmental light, while actually ignoring the crux of the problem. So, as with any due diligence of investment opportunities, it’s important not to take things at face value,” he says.
While your investment manager might tell you that the portfolio’s ESG-integrated, it’s up to you to check exactly which companies are included in the investment mix. Often companies from the tobacco and other industries score enough points to pass the ESG criteria, even if they don’t conform to consumers’ ideas of ethical investments. Davies urges consumers to ask the right questions and indicate to fund managers that there’s a real market for truly ethical investment funds at a retail investor level.