From time to time potential clients ask me about ethical investing.
I often share their concerns. I do not want my money to be used to further wars or criminal activity. A common request is can we avoid investing in armaments?
Some think that placing a ban on buying shares in the leading weapons manufacturers makes the point. The problem with this is the main arms companies depend on a host of other businesses, outsourcing many of their activities, and relying on the services of many others. If we ban buying British Aerospace as an arms maker, what attitude should we take to the bank that provides them with their working capital, to the advertising and PR agency that handles their account, to the component maker that supplies them with their crucial parts or to the computer supplier that provides them with the hardware and software that enables them to design their weapons?
Should we seek a distinction between "ethical" arms makers who sell weapons for defensive purposes to countries we approve of, and those manufacturers who sell potentially offensive weapons to belligerent tyrannies? Are we happy with the sale of weapons to countries fighting wars under the imprimatur of the UN or not? If you wish to be sure you are not supporting state inspired killing, you need to cast your net very wide when avoiding investments in companies that profit from this trade.
I think worse still is to lend the money to the governments that buy and use the weapons. How could you justify holding US or UK government bonds if you objected strongly to the Iraq war? The bonds directly financed the conduct of the war and the purchase of the munitions and weapons.
Similar complexities arise with medical issues. Some say they do not invest in tobacco shares because smoking can be so harmful to health. What attitude should we take to pharmaceutical shares? Many see these as entirely benign, trying to save lives. Others argue that testing on animals is unacceptable practise still undertaken by some companies, whilst excessive drug taking can itself be damaging to health.
As an investment manager I am here to serve my clients. My individual dislike of animal cruelty and aggressive governments does not colour my investment judgements for others. If a client wishes to express a particular ethical view, we will implement it or explain why it is difficult to do. Using index trackers allows you to avoid lending to governments that are unpleasant and countries that behave badly. It is also possible to compile indices leaving out types of company or shares if that is required. ETF providers are happy to look at any suggestion for a new index if there is demand for it. We would be happy to discuss this with charities that have particular ethical needs.