In practice, the argument about excluded investments oversimplifies matters. All active investment managers use some form of pre-selection to create a buy list from which to develop investment portfolios. Ethical screening is simply another variant on this screening approach. What ultimately determines performance is the fund manager’s skill in asset allocation and stock selection.
In the longer term, cold logic also supports the case for ethical investment:
- A poor environmental record is often indicative of wider management failings within a company.
- Ethical issues can have a serious impact on a company if consumers decide to take action, eg a boycott. Shell’s problem with the disposal of the Brent Spa oil platform was a classic example of this consumer power.
- A company with weak corporate governance is more liable to failure – witness the situation at Enron, the US energy trading company which crashed in 2001.
- Greater awareness of issues such as global warming means that companies which offer potential solutions can look forward to growing demand.
