How ethical are your investments…?
Even for the most un-eco-conscious (not that many of our readers are!), making ethical lifestyle choices has become ingrained in our everyday routine. But how far does this extend to the investments we make?
It is relatively easy to have control over our carbon footprint, but investing ethically is becoming a greater concern and there are calls for more transparency over where our money is going. For example, it is all very well choosing not to eat beef reared in the Amazon but what happens if you put your money in a bank which invests in palm oil and threatens to destroy another rainforest?
And how can the individual call the big companies into account when it comes to their carbon omissions? Recently the NGO Environmental Investment Organisation (EIO) launched a product which aims to do just that.
Its carbon ranking system, as part of the broader ethical index tracking system, ranks the FTSE 100 companies in order of their carbon emissions. The companies are ranked due to their market capitalisation and their weighting is readjusted due to their measured carbon emissions. In doing so it aims to incentivise companies to reduce their environmental impact and increase the standards of disclosure on their carbon emissions.
It works essentially by good old naming and shaming. It gives companies listed at the bottom of the list, which include Goldman Sachs and Rosneft Oil negative press. And the best get rewarded with a bit of positive publicity. Among the top 10 ranked companies are AstraZeneca Plc UK and Panasonic Corp, Japan.
The EIO argues that along with the power of publicity, the index could alter the supply and demand for the companies’ shares and ultimately their share prices if it is adopted by a sufficiently large pool of investors.
But, unfortunately, in the current financial climate, it seems likely ethical concerns will be sidelined in favour of greater returns.
Another problem with ranking system is that some companies by nature of their business will pollute more than others making the comparison a bit unbalanced; for example Vestas Wind Systems AS – Denmark, ranked in the top 10 comes off a lot better than bottom ranked China Petroleum & Chemical.
Whether the index has any real clout remains to be seen and it is doubtful if it will make as big an impact on share prices of companies with a large carbon footprint as desired.
Still, promoting more disclosure on carbon emission can’t be a bad thing and will be particularly useful for those who want to avoid making unethical investment decisions.
What do you think? Would such an index alter your investment choices…?
Source: Financial Times
The liveeco team
