One of the more surprising items on my daughter's Christmas list this year was a goat. Not a goat to tie up in our backyard (that was never going to happen!), but a goat to be donated to a family in Papua New Guinea as a gift that keeps on giving.
Said goat would supply the family with seven litres of fresh milk each week to drink and sell and would also provide organic fertiliser for their crops.
My daughter's new-found interest in goats and other life-changing gifts is consistent with growing global awareness of environmental, social and ethical issues. Even if we don't hold strong views on social responsibility, each of us is probably more aware now of the choices we have in terms of household products, food and travel to work than we were a decade or two ago.
Increasingly, investors are showing an interest in reflecting their ethics and beliefs in their investments. Ethical investing is not new. Religious organisations have long used morals to help make investment decisions, aiming to avoid involvement with companies whose products were perceived to be 'bad', such as alcohol and gambling.
The concept of socially responsible investing has evolved and become widely accepted and increasingly popular. Publicly traded companies now know they are under the spotlight as investors seek to align investments with personal beliefs; the investment industry has responded to the 'green movement' by launching socially responsible funds for investors. In the US alone, the number of managed funds with a socially responsible mandate has grown from approximately 50 in 1995 to more than 500 by 2012.
Popular as it may be, socially responsible investing remains a challenging area because we all have different standards. What is ethical and responsible to me may not be ethical and responsible to you. While I might be comfortable investing in a wine company, you might want to avoid all businesses vaguely associated with alcohol.
A lot of investors would like to 'do well' while at the same time 'doing good'; it is not always as simple as it sounds.
Finding investments consistent with your own ethics is probably quite easy but, if you are using a financial adviser, fund manager, or KiwiSaver provider to select your investments, you need to check out their policies and goals; each could be quite different.
I have been frequently asked over the years whether our funds are socially responsible - we think they are but others might have different definitions.
Fund managers can use a number of ethical strategies to help select investments for their portfolios. They can look for 'best in class' companies within an industry which stack up well against a set of environmental and/or social criteria. Or they can be more pro-active by focusing on industries which have the potential to influence the world positively.
Ethical screening is probably the most common approach among fund managers - where companies are included or excluded for their ethical policies and behaviour. The fund manager then selects preferred investments from the short list of companies which meet high social or environmental standards.
Another strategy is known as 'engagement' where companies believed able to 'do better' are targeted by fund managers. As a significant shareholder, the fund manager uses influence at board and management level to get the company to change its policies and behave more responsibly.
Socially responsible investing will likely further evolve. Ideally we would all like to 'do good' at the same time as maximising returns but it can be a balancing act ensuring good ethical decisions are not made at the expense of investment returns.
For me as a fund manager, the 'do well' objective must always be the main focus, although I believe our funds are also socially responsible. In my experience, good companies become good companies because they understand the needs of all their stakeholders - including staff, customers, community, environment and shareholders. As a result, they become good investments.
• Carmel Fisher is founder and managing director of Fisher Funds
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