Viewpoint: Know where your money’s going: Investing with a conscience

The ‘go green’ movement has encouraged people to make a series of changes in their lives.

From getting people to choose paper bags over plastic, to inspiring a widespread adoption of reusable water canteens and reductions in energy and gas consumption.

These life changes generally don’t cost much, if anything, and at times even promote less spending. But what if you could help mother nature while simultaneously profiting?

Ethical mutual funds have been around since the late 1980’s, and they claim to do just that, albeit with the same financial risks as conventional funds.

“When you are investing in ethical mutual funds, what you’re getting is referred to as a double due-diligence,” says Elaine McHarg, senior vice president and chief marketing officer for Ethical Funds Co., a Vancouver-based ethical mutual funds company.

The unique mutual funds give investors the comfort of knowing a portfolio manager has reviewed the investments and thinks each company has a “good financial foundation,” as well as good business practices, says McHarg.

 A second team then analyzes the investments from a sustainability perspective and how they will perform from an “environmental, social and governance side.”

This sounds like a win-win situation for all, but skeptics may question how companies are labelled as ethical and sustainable.

The companies that these mutual funds invest in are analysed to gauge their ethical and environmental practices. A team of analysts from these funds use scorecards with 80 to 100 questions, based on the company’s sector.  

“The company is evaluated based on information that can be obtained in the public forum, but also information they can obtain through interviews with the company,” says McHarg.  Each company is then given a score based on its performance within its sector.

Another tool used by the funds to ensure ethical and sustainable business practices is “shareholder engagement,” says McHarg.

This tool is available to anyone making investments, whether the company or fund they are investing in is sustainable or not.

When a person chooses to invest, they are afforded certain rights and privileges within those companies.  

This allows the investor to make grievances and suggestions for how the company is run and, in a sense, make changes to it from within.  The more stock held by the inves

tor, the more influence they have.

Mutual funds might hold a larger investment within a company than an individual stock holder because of the number of people that contribute to them.  

Therefore, if there is an ultimate goal for shareholders within a mutual fund, be it high profit or ethical corporate behaviour and sustainable practices, the company can be encouraged to listen and make changes.

Ethical Funds Co., for example, uses its scorecard evaluations to show companies where and how they can improve their business practices.

“It’s creating knowledge and engagement internally,” says McHarg. “It’s almost like a corporate coaching model. It’s saying to the company, here’s some of the things you can improve on in certain areas that will have long-term benefits for you.”

Ethical Funds Co. often suggests appropriate environmental assessments and reviews be done during corporate projects in order to avoid legal claims, and that human rights and ethical corporate governance are a high priority.

“These are things that would slow the company down in the long term,” says McHarg.  

However, shareholder engagement from ethical mutual funds gives companies a warning so they can make the changes to avoid problems in the future, she says.

The long-term is where ethical mutual funds shine.  

By promoting ethical and sustainable practices in investments, it creates an environment in which businesses need to develop better business practices in order to have public support, which translates into profitability for a company, and arguably, for the investor.

Even small positive changes to corporate behaviour are better than none at all.

The more people who invest in ethical and sustainable mutual funds, the more pressure businesses will have to become the kind of establishments that will pass the test.

Ethical Funds Co., created in 1992, is the oldest sustainable mutual fund family.   

The oldest ethical  mutual fund in Canada, the Ethical Growth Fund, was created in 1987 by Vancouver City Savings Credit Union.