Social, environmental and other ethical issues
This page covers some of the issues that are commonly of concern to investors seeking to apply their social, environmental and ethical principles to their investments.

Introduction

Traditional ethical investment issues

Environmental issues

Social issues

Positive products & services

Governance & ethics

Introduction
The first thing you should remember when assessing the social, environmental and overall ethical performance of a company or an ethical fund is there is no such thing as a perfect company. All are involved in activities that someone somewhere will object to; none go far enough in terms of positive social and environmental contribution to satisfy all of the people all the time. With that in mind ethical/socially responsible investment is about compromising and prioritising.

Traditional ethical issues
For many the first introduction to ethical investment came as a response to the human rights abuses in South Africa under apartheid. Since then investors have extended the boycotting approach to other oppressive regimes, Such negative coverage has given companies an impetus to adopt human rights policies or codes of business conduct. Policies of this kind are particularly relevant to operations in countries with poor human rights records. While some investors seek to avoid involvement in oppressive regimes altogether, for others it is what the company does in a country that is of interest. Is it an influence for good, or does the business either benefit from or somehow support a climate of repression?

Other, often connected issues are armaments (production and sales) and the Third World. With the latter corporate activities such as commodity extraction, breast milk substitution, pharmaceutical marketing and holding debt.

Alcohol, gambling and tobacco were the traditional concerns of the temperance movement back in the 1900s, where the origins of ethical investment can be found. For some these are still of significant concern today, particular with the adverse effects on health and

Environmental issues
Public concerns about the degradation of the environment are becoming increasingly widespread. Protests, shareholder actions, boycotts and other campaigns have brought these concerns to the attention of business. EIRIS researches three ways in which companies have responded: producing environmental policies, implementing environmental management systems, and reporting on environmental issues relevant to the company. In addition, some companies have also started to engage with stakeholders, including employees, communities, shareholders and campaign groups such as Friends of the Earth and Greenpeace. Calls for increased transparency in company activities have led to an increase in reporting on environmental performance. A number of organisations, notably the Global Reporting Initiative (GRI), have published guidance documents in an attempt to standardise the format used. However, many companies have been criticised for publishing 'greenwash' to improve public relations without including meaningful performance data.

In addition there are specific environmental issues that continue to be of concern to responsible investors. For example climate change exacerbated by companies' greenhouse gas emissions and use of ozone depleting chemicals (ODCs); the use of pesticides and genetic engineering; the use of tropical hardwood;(air and water) pollution and industries associated with nuclear power, mining and quarrying and fossil fuels.

Social issues
These encompass a wide range of issues related to how a company behaves towards its stakeholders i.e. customers, employees, suppliers, shareholders and the community within which it operates and what standards it might set. For example, when assessing a company's attitude towards its employees EIRIS looks at several areas including equal opportunities, training and development, and job creation and security. When looking at a company's standards with regards to suppliers we would investigate how companies ensure that core labour rights apply throughout their supply chain, particularly where their suppliers are based in countries where child labour is common. Community involvement and charitable giving have also become areas where companies have come under scrutiny, to see if they make a positive effort to contribute to the communities they work in and to society at large, whether via donations or other means.

Positive products and services
Knowing whether the product or service provided by a company contributes positively to society is something that has been of interest to many ethical investors for a number of years. Ethical investment is not only about avoiding companies but also about actively supporting companies that are contributing positively to society and/or the environment. Of course, there will be different views about what products or services should be regarded as positive; and perhaps one can supply a basically ‘good’ product or service in a way that does not benefit the world. Products and services that are often identified as "positive" include basic necessities, environmental products/services and other services which help making the world a safer and better place. Examples might be wind power generators, pollution abatement technology, public transport and bicycles, safety and protection systems such as fire alarm, healthcare including medicines, housing, utilities and educational services.

Governance & ethics
Concern about the governance of public companies has increased immensely over the last few years, particularly following corporate scandals such as Enron and Worldcom. Corporate governance has been on the SRI agenda for some time and includes issues such as board structure and practices. This would encompass factors such as women on the board and directors' remuneration. The latter having received massive media and public interest in the so-called ‘fat-cat’ scandals about large pay rises for directors, when shareholders felt they had not done enough to justify these substantial pay increases. Questions such as does the company have a code of ethics and does it make any political donations would also come under this umbrella.