We’re all ethical consumers these days—but where we keep our ethical pocket money is a common blind spot. Plus: How does your bank stack up?
We’re all ethical consumers these days—but where we keep our ethical pocket money is a common blind spot. The financial crisis has signalled a shift in thinking, from short-term profits to long-term investment and returns, writes Supriya Rathod, and with it comes a renewed interest in investing responsibly. Here’s how
How does your bank stack up? Download PDF
Gail and John Aiken don’t finance weapons manufacture, slave labour, pharmaceutical companies, genetic engineering, sweatshops, pesticides, herbicides, or any other environmentally harmful industry. Good for them—but so what? Neither do you, right?
Don’t be so sure.
You probably choose free-range eggs instead of caged ones, and may avoid certain brands because of their poor environmental or social record, but even the most ethical consumers among us have tended to overlook applying those same ethics to the institutions we invest with or borrow from. Until now.
Last year’s global financial meltdown did more than lose trillions of dollars and hundreds of thousands of jobs around the world. It rattled our trust in financial institutions, and raised serious questions about business and investment ethics. Banks can no longer expect blind loyalty from their customers.
So what choices do we socially and environmentally conscious investors have? Our need for financial services means we won’t stop using banks anytime soon—but we can influence them to act ethically by the questions we ask and the choices we make. The question is, how do we balance financial returns with sustainable and ethical investing?
‘Ethical finance’ aligns investment with an individual’s values on ethical, social and environmental issues. It is also known as socially responsible investment (SRI) or responsible investment. It’s about combining financial return with social return, says Glen Saunders, a director of ethical finance specialist Prometheus and board member of the United Nations Principles for Responsible Investment. “Simply put, it is looking for good opportunities to invest in industries of the future, and avoiding negative social impacts where possible.”
Like many modern couples, Gail and John are committed to making good choices in all aspects of their lives—including their investments. “We believe strongly that it is possible to live in a better way,” says Gail. They wanted their savings to support projects that are trying to make a difference. To meet their strict ethical and environmental requirements, there was one clear choice for their investment:
Prometheus, so far New Zealand’s only ethical finance specialist. It lends to environmentally sustainable and socially responsible businesses, projects and individuals across New Zealand, with investments in renewable energy, sustainable agriculture, energy-efficient housing, resource recovery and habitat protection.
Earthsong Eco-Neighbourhood, a housing development in Waitakere, was part-financed by Prometheus. New Zealand’s first cohousing community, it was built in 1995 on permaculture principles, with environmentally friendly homes made of rammed earth. But valuers struggled to calculate the values of the homes for mortgages. “Banks were far from helpful,” says the community’s finance coordinator, Lippy Chalmers. “Fortunately we knew of Prometheus, and some of our members turned to them for private mortgage finance. As a result, some have also invested with Prometheus, as they can know exactly what their money is doing and who it is helping.”
Digging into investment portfolios looking for red flags is a tough job, and it doesn’t have to rest on individual investors. Financial advisers should ask more questions, says ethical investment specialist Rodger Spiller, the managing director of Money Matters.
“Generally, investment advisers only ask about your goals and risk profile to determine investments appropriate for you. However, best practice requires that they also ask if environmental, social or ethical considerations are important to you.”
Financial returns from ethical investing are middle-of-the-road, roughly equivalent to the interest rate on a call account of a mainstream bank. The big difference is the knowledge that your money supports projects that promote ethical practices and have a positive social and environmental impact. The same is true for lending rates, with additional borrowing criteria covering social and environmental impact and sustainability.
Becoming an ethical investor might take a bit more effort, but the good news is that the impact of your responsible investing will spread beyond the projects your money supports. Investors can shape markets. If more investors emphasise the importance of environmental, social and governance considerations in their investments, organisations will be compelled to act ethically and responsibly, driving social and environmental sustainability. It all starts with the choices we make for our money.
No your usual lenders
There are a number of community development financial institutions across New Zealand with an ethical, social or environmental focus. They are generally regional and have specific criteria for investment.
Prometheus supports only socially and environmentally responsible projects in New Zealand, and provides loans for projects and businesses that will help build a sustainable future. Nationwide
Quaker Investment Ethical Trust provides Save the Planet Loans of up to $8,000 for energy efficiency projects such as insulation and solar heating, as well as finance for other socially or environmentally beneficial projects. Applications are welcome from non-Quakers. Investors can make lump sum or regular payments to on-call accounts. Nationwide
Nelson Enterprise Loan Trust (www.nelt.org.nz) operates an ethical investment fund that loans to small enterprises unable to obtain finance from mainstream sources. With investment from local people, the fund encourages wealth to remain in the region. Nelson
Just Dollar$ provides loans of up to $10,000 to help people generate income and employment. Applicants must be on low incomes and unable to secure bank finance. Non-profit and commercial ventures are also eligible, and should have a positive impact on the community and/or the environment. Investors can make term deposits. Canterbury
Maori Womens Development Inc provides loans to Maori women, and now Maori men, to help set up or expand a business, and provides financial advice and mentoring services. The loan limit is up to $20,000. Market interest rates apply and security is required for a loan term up to five years. Nationwide
Employment Generation Fund from the Methodist Church of New Zealand provides assistance to ventures showing good possibilities for employment generation (particularly youth employment) and a commitment to social objectives. Northland, Auckland and South Auckland
Nexx is a social lending service due to launch later this year. It will allow borrowers to list their financial projects online, and lenders to pledge funds at an interest rate acceptable to them—a bit like an online auction site. With no bank or finance company in the middle, the interest rate paid by borrowers is the same as the rate that lenders receive. Nationwide.
