Ethical Investment
Grant Michelson Nick Wailes Sandra van der Laan Geoff Frost
Processes and Outcomesq
ABSTRACT. There is a growing body of literature on ethical or socially responsible investment across a range of disciplines. This paper highlights the key themes in the field and identifies some of the major theoretical and practical challenges facing both scholars and practitioners. One of these challenges is understanding better the complexity of the relationship between such investment practices and corporate behaviour. Noting that ethical investment is seldom characterised by agreement about what it actully constitutes, and that much of the extant research focuses on a narrow set of issues, the paper argues that there are benefits associated with examining ethical investment as a process.
KEY WORDS: ethical investment, socially responsible investing, screening, funds management, corporate social responsibility Grant Michelson is a senior lecturer in Work and Organisational Studies, School of Business at the University of Sydney. Dr. Michelson’s teaching and research interests include business ethics, industrial relations, and organisational behaviour (especially the moral dimension of rumour and gossip at work). Nick Wailes is a lecturer in Work and Organisational Studies, School of Business at the University of Sydney. He teaches strategic management and entrepreneurship. Dr. Wailes’s research interests include the impact of enterprise resource planning systems on work organisation and the influence of institutional investors on corporate human resource strategies. Sandra van der Laan is a lecturer in Accounting and Business Law, School of Business at the University of Sydney. She is a member of the Asia Pacific Centre for Environmental Accountability (APCEA). Her research focuses on social accounting and she is currently completing a Ph.D. on socially responsible investment. Geoff Frost is a senior lecturer in Accounting and Business Law, School of Business at the University of Sydney. He teaches management accounting. Dr. Frost’s research interests include environmental reporting, the role of accountants in the environmental management system, and the use of alternate reporting mediums by reporting entities.
Introduction Ethical investment has emerged in recent years as a fashionable and increasingly popular topic in the financial services industry, particularly in the United States. Estimates in that country are that about one in every eight investment dollars (13%) are now committed to ethical investment funds (Social Investment Forum, 2001). While of less current significance in other national contexts, including the United Kingdom and Australia, investment patterns in both countries also point to an increasing trend of monies being placed in ethical funds (Williams, 1999). There are a number of possible reasons for this growth including those on both the supply side (e.g. legislative imperatives and requirements of funds, managers of investment funds identifying a new opportunity in the market to broaden their investor base) and demand side of financial markets (e.g. the personal preferences of both individual and institutional investors revealing unequivocal support for moral considerations) (Cullis et al., 1992, p. 8). ‘‘Ethical investment’’ (the term favoured in the United Kingdom) or ‘‘socially responsible investment’’ (the term commonly used in the United States) is broadly defined as the integration of personal values, social considerations and economic factors into the investment decision. Financial return remains an important outcome but it is not the sole criterion driving investments; ethical concerns are also included. As one equities manager reported when describing the raison d’eˆtre of an ethical fund: ‘‘There’s nothing wrong with making money but it’s how you make the money that counts’’ (see Murray, 2003). There is an increasing body of literature which examines the topic of ethical investment. Until
Journal of Business Ethics 52: 1–10, 2004. 2004 Kluwer Academic Publishers. Printed in the Netherlands.
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very recently, there has been relatively little attempt to try and synthesise the different threads in this work (for one exception, this journal produced a special issue on social investment screens – see volume 43, number 3, March 2003). The collection of papers presented here seeks to further advance our understanding of ethical investment by exploring the issue in its entirety. That is, it examines the motives and actions of individual and institutional investors, discusses the various processes or mechanisms associated with ethical investment, assesses the impact of ethical investment on the behaviour of the organisation, and evaluates the outcomes of ethical investment for special interest groups. The purpose of this paper is to highlight many of the key themes in the research literature as well as to identify some theoretical and practical challenges for the field.
Who invests in socially responsible investment? It might be assumed by some that those who invest in ethical or socially responsible funds do not invest at all in non-ethical funds. While there will be individuals for whom this claim is accurate, some research evidence reveals that it is common for people to invest both in socially responsible and more standardised or conventional funds. The motivations of ethical investors appear to be quite complicated in reality (Lewis, 2002; Mackenzie and Lewis, 1999). There is no straightforward trade-off between a person’s values and their desired and expected financial return (Lewis and Mackenzie, 2000a). In other words, investors in ethical funds appear to spread their monies across a range of funds with different risk-return profiles. Given this finding, it is equally plausible that the better performing ethical funds attract not just ethical investors but more general or conventional investors as well. This is unsurprising as financial return is an important criterion for investors, regardless of the (ethical) status of the fund. Nonetheless, some investors do feel the need to put their money to work in ways that are consistent with their personal values, and are generally committed to their socially responsible investments even if they perform poorly or are ethically ineffective (Webley et al., 2001). Part of their motivation might
be to simply ‘‘feel good’’ (psychic income) or to try and promote social change, even if this means receiving a slightly lower financial return than conventional investors. In this sense, an ‘‘ethical penalty’’ is placed on the action of having invested according to one’s values (Tippet, 2001, p. 176). It could be that individuals who invest in ethical causes are relatively wealthy and therefore able to bear a financial cost (Tippet and Leung, 2001). Naturally, this assumes that investors are aware that their monies might perform better somewhere else. Gender and education seem to play a part in explaining the growth of socially responsible investment, at least in the United States (Schueth, 2003, p. 192). These demographic characteristics also appear useful in profiling those more likely to invest in such funds in other countries. For example, ethical investors in Australia tend to be women, are relatively young, and highly educated (Tippet and Leung, 2001). However, as Dunfee (2003, p. 249) and Lewis (2002) have recently argued, more needs to be known about investor psychology in the context of socially responsible investment. McLachlan and Gardner in the second paper to this special issue engage with this need and show that key differences between ethical and non-ethical (or conventional) individual investors remain. These writers also caution against discounting the needs and desires of socially responsible investors in terms of the marketing of financial services funds. Broadening the level of analysis to an examination of institutional investors, Cox and his colleagues in the next contribution provides further evidence for the thesis that an organisation’s social performance influences longterm investment by institutions.
The processes of ethical investment Part of the process of socially responsible investing includes the development of mechanisms which inform actual and potential investors about the involvement of organisations in activities which are seen either as of concern or are attractive in ethical terms (Cullis et al., 1992). Integral to this is the development of social screens. Screening is the practice of excluding or including companies from investment portfolios based on a range of social and
Ethical Investment Processes and Outcomes environmental criteria. Thus, there are two major ways of establishing whether an investment is ethical. The first is to apply a negative screen (a ‘‘never if ’’ case) whereby certain businesses are avoided, presumably because they are injurious to human health. These have generally included the commonly listed troika ‘‘sin’’ equities of alcohol, tobacco and gambling. The second way is to apply a positive screen (an ‘‘only if ’’ case) to those firms that remain possible investment targets; in particular, those identified as engaging in socially responsible practices are seen as more attractive investment options. Precise data on the proportion of investments that are ethically screened are difficult to establish, due to the lack of consensus on how to define ethical investments (Schlegelmilch, 1997). Exploratory research reveals some variance in the criteria used by ethical investment fund managers to screen firms. For some of these managers, the behaviour of firms is more important than the product or service provided (Stone, 2001). A best-in-class or best-inindustry approach is favoured by some funds whereby membership of an ostensibly ‘‘bad’’ industry does not automatically disqualify a company from investment by the fund. Companies within the same industry sector are compared and ranked against each other, not against those outside the industry. The best-in-industry approach clearly confirms the importance of seeking good financial returns as ‘‘sinful’’ industries often provide aboveaverage returns on investment (Tippet, 2001, p. 172). It also highlights a more proactive desire to work to improve the overall social performance of firms, rather than investing in companies that, on the surface, appear to be moral entities simply because they are located in more ‘‘ethically acceptable’’ parts of the economy. For example, a firm that recycles waste and paper products may rate highly on environmental performance, but might adopt poor practices in other areas such as supplier, customer and employee relations. The best-in-industry approach would therefore allow investment in mining companies provided that they seek to be socially responsible in terms of cleaning up after themselves and adopting safe operating practices. An ongoing challenge for those who employ various screens using a best-in-industry approach is how to judge a firm’s performance. Company an-
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nual reports emphasising a selective range of practices appear self-serving. Perhaps the best way forward is to establish uniform accounting principles for social reporting, including the auditing of any such reports produced (see Dunfee, 2003). Other studies which have sought the views of fund managers (as opposed to individual investors) reveal that the availability and accuracy of company information is a crucial mechanism in the ethical investment process. A survey of 172 investment professionals in the U.K. found that company information was rated ahead of other commonly used screening criteria including product safety, environmental record and employment practices (Schlegelmilch, 1997). Coupled with their expressed desire to capture a good rate of return, this finding suggests that investment professionals could be receptive to more information being provided about a firm’s social activities. Whether companies are prepared to provide more information to such investors is debateable. In the paper by Hummels and Timmer, the authors raise some doubts about the provision of relevant social, ethical and environmental (SEE) information by three well-known multinationals (Nike, BP and Monsanto). However, there are signs that the nature of shareholder engagement might be changing in contemporary organisations. Hockerts and Moir claim in their paper that the investor relations function within a sample of predominantly European multinational firms are becoming more sophisticated. Investor relations managers are increasingly aware of corporate social responsibility issues and the need to communicate more effectively with actual and potential investors. The companies surveyed acknowledged the need for improved disclosure and reporting on social and environmental performance. We maintain that the inter-related issues of transparency and disclosure are clearly important considerations at the company or firm level. This is no less relevant for the funds themselves. Investors need to carefully examine the prospectus to see if the fund performance and ethical guidelines meet their needs (Hollingworth, 1998). However, this information might not be provided or, if it is, might be unreliable (Hoggett and Nahan, 2002). Ethical or socially responsible funds are not always forthcoming about which companies (and why) are included
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in their portfolios (Tippet, 2001). As part of a commissioned report on the ethical investment industry in Australia, how fund managers actually manage the money as opposed to what they report to their investors was examined. The processes used by fund managers to determine which businesses to invest in varied significantly. Of the 16 ethical funds surveyed, only four funds were regarded as having a high level of transparency (TEC, 2003). Given the plausibility that each investor’s idea of ethical or socially responsible investment is different, the need for clear reporting procedures about how the funds actually invest is crucial. More transparency in the practices adopted by fund managers will provide investors with more confidence in terms of ensuring their monies are invested in industries and companies consistent with their own social priorities. Of course, there are other problematics with the screening process. For example, there is no single definition of ‘‘social responsibility’’ (and therefore no consensus as to an appropriate standard) for the purposes of establishing investment screens. One consequence of this is that the screening criteria employed are quite subjective (Hollingworth, 1998). Not surprisingly, both similarities and differences in ethical concerns exist in different national settings, including the United Kingdom and the United States (Williams, 1999). Even within the so-called ‘‘sin’’ industries there is no general consensus. While tobacco might be seen as morally objectionable (Schwartz, 2003; Yach et al., 2001), in some countries gambling is not (Schwartz, 2003). The criteria for defining negative screens seem simplistic whereby the product or service, rather than its impact, is addressed. For instance, the case of screening against military contracting could be rebutted where peacekeeping roles are increasingly being served by military forces. Here, more social good than social harm might result (Schepers and Sethi, 2003, p. 19). This is not to suggest that the field is incoherent; some argue there is a need to accept different approaches to social screening (e.g. Dunfee, 2003). Consequently, it is claimed that investors indeed know the ‘‘perfect company’’ is a fiction and that the screening or evaluation process is simply about identifying better-managed businesses (Schueth, 2003, p. 190). No more and no less. Thus, the imposition by investors of a zero tolerance level of
‘‘unethical’’ practice by organisations on any dimension could be unworkable and potentially exclude all firms from consideration. With the breadth of their reach and activities, this argument is particularly relevant in the case of multinational firms. Such organisations are often involved with many products across many countries. Another issue to consider around negative screens is the question of primary and secondary involvement. While potential investors may baulk at the defence industry (armaments companies per se), they might be less concerned with investing in steel companies or electronics firms even though such firms are involved in the supply chain of weapons production through military hardware and missile guidance systems. To address such possibilities, some funds establish a maximum threshold figure whereby certain companies are excluded only when the proportion of sales of, say, steel or electronics to the more explicitly offensive defence industry becomes too high. But what is considered too high? Schepers and Sethi (2003, p. 17) contend that the cut-off figure is subjective and is not uniformly applied across different funds. Despite the practical difficulties of acquiring accurate information about the level of involvement, indirect or secondary contribution should still be part of the screening process. This will ensure ethical consistency (Schwartz, 2003, p. 209). Positive screens are also not without their problems. Some contend that the process of attributing socially desirable and responsible practices to firms – thereby increasing their attraction as investment targets – is subject to a wide degree of variability. The example of ‘‘diversity’’ is given whereby different behaviours (e.g. equal opportunity programs, active recruitment of minorities, and discrimination policies) are usually identified as representing diversity within an organisation. But are these behaviours fully representative of notions of diversity? How should diversity be operationalised? (Schepers and Sethi, 2003, p. 22). Perhaps for all of these reasons, ethical investment needs to be considered as much a process as a set of specific aims. The identity of specific criteria might become less important than ‘‘… the way in which issues are identified and considered, the degree of information obtained, (and) the action that is taken in response’’ (Taylor, 2001, p. 59).
Ethical Investment Processes and Outcomes Does ethical investment pay? How ethically screened investments perform in relation to unscreened or more conventional funds is one of the most contentious and debated issues in the field. There is some evidence that it does pay, while other evidence suggests that it does not. This section will address the logic underlying both arguments. Many commentators claim that ethical or socially responsible investing provides returns at least no worse than standard or conventional investing (e.g. Cummings, 2000). After all, socially responsible investors are clearly not interested in considering unprofitable investment options or paying a significant penalty for their ethical choices, since financial return remains an important consideration. A review of the evidence suggests that there is merit to such claims (see Rivoli, 2003, p. 272). In fact, it might be the case that ethical investments do financially better than more conventional forms of investment. This is an essentially ‘‘doing well by doing good’’ argument. In the United Kingdom, ethical funds over the period 1986–1993 outperformed (on a risk-adjusted basis) non-ethical funds (Mallin et al., 1995). There are a number of reasons why ethical investments might do better than more standard or conventional investment. First, it is thought that higher financial returns occur because of the adoption of social screening practices. Ethical firms can act as a positive ‘‘signal’’ to investors since they communicate to the market the types of factors including their focus on sustainability and management quality that socially responsible firms are expected to embrace (Cullis et al., 1992, p. 13). Contained within this logic is a view that ethical investment operates with longer time horizons than more conventional investment. If this is correct, the outlook for ethical investing is bright as some fund managers in Australia believe that legislative and customer trends such as recycling initiatives, workplace smoking bans and higher taxation on gambling will continue to give emphasis to the ethical investing ‘‘business model’’ (Drury, 2003). Empirical research supports this optimism since the longer an ethical fund has been operating, the more likely it will outperform more recently established funds (Cummings, 2000). In contrast, there are numerous reasons expounded as to why ethical investment will not re-
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ward investors. Indeed, it is argued that ethical investment will attract a financial penalty and lead to lower returns than other forms of investment. This perspective might be summarised as a ‘‘doing poorly by doing good’’ argument. These reasons will now be discussed. We are accustomed to the segmentation of markets when it comes to consumer items. In terms of marketing strategy, different firms compete for advantage by attempting to distinguish their products and services across a number of dimensions. These dimensions might include price, quality, reputation, packaging, availability and, in some cases, social responsibility. As some authors note, ‘‘This segmentation strategy, however, is not well accepted in capital market theory. Neo-classical economics, for example, assumes that investors care about only two characteristics as they make their investment choices: an investment’s expected risk and expected return’’ (Hickman et al., 1999, p. 72). Conventional portfolio theory recognises that an investor’s exposure to risk can be reduced – without any reduction in return – by diversification. An investment portfolio that is highly diversified is only exposed to unavoidable economy-wide or market risk. Because ethical or socially responsible investment portfolios based on negative screens exclude certain investments, they are less diversified. Therefore, it is assumed that the exposure to risk for ethical investment is higher than for non-ethical or traditional investment (Carswell, 2002). However, traditional investors can still benefit from diversification by including ethical funds as part of their portfolio strategy. Similarly, benefits accrue to ethical investors who include more traditional funds as part of their portfolios (Hickman et al., 1999). As noted earlier, empirical research suggests that the latter best characterises the behaviour of ethical investors (Lewis and Mackenzie, 2000a; Mackenzie and Lewis, 1999). It might well be argued too, that ethical funds attract higher transaction costs and management fees due to the relatively small size of the funds, and the need to collect specialised information data concerning the ethical practices of firms. On this last point, managers responsible for implementing social screens do indeed consult a wide range of sources of information, and do this on a regular basis (Stone, 2001). This finding is not surprising given the lack of
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standardised social data on corporate behaviour. Consequently, it appears that ethical fund managers invest considerable time and effort assessing and reassessing a firm’s social performance. This will invariably add to operating costs as some contend: ‘‘Small size may mean that the ratio of management fees and expenses to total income of the funds is high’’ (Tippet, 2001, p. 174). Some also believe that the recent good performance of ethical funds is merely an artefact of the types of companies invested in to date. Because they could have more technology companies in their portfolios (due in part to the exclusion of other companies such as those operating in the resources sector such as mining), their performance has reflected short-term sectoral growth in ‘‘fashionable’’ industries (Hoggett and Nahan, 2002). According to such critics, the bursting of the information technology and dot.com bubbles is likely to impact negatively on the future performance of ethical funds.
Does (ethical) ownership matter? A wider question to consider is whether ethical or socially responsible investing changes corporate behaviour. In general terms, investment decisions can provide an external influence on organisations in terms of changing firm practices (see Solomon et al., 2002). However, more needs to be known about why such changes might occur. What has been employed by some scholars in the field including Pietra Rivoli and Alan Lewis to answer this question is the work of Hirschman. That is, investors can respond to ethical lapses in terms of both ‘‘exit’’ and ‘‘voice’’ strategies (Hirschman, 1970). The sharemarket itself clearly embodies the ‘‘exit’’ strategy in that investor values and convictions are converted by the market into preference for buying and selling equities. Investors can simply choose not to be associated with unethical activities by withdrawing their monies from various firms. However, practically all socially responsible funds exclude gambling. Yet as some observe with a sense of irony, the foundations of sharemarket investment itself involves a strong gambling element (Cullis et al., 1992, p. 21). Ethical funds are not immune from this broader philosophical criticism. It is not clear whe-
ther the ‘‘exit’’ response helps to change firm behaviour towards it embracing more socially responsible practices. This will depend on what impact the boycott has on the firm. Firms whose share prices are more sensitive to a changing investor base would be thought more responsive to the preferences of the ethical investor (Rivoli, 2003, p. 283). Premised on shareholder or investor activism, the ‘‘voice’’ strategy seeks to change firm behaviour and might include the lobbying of shareholders and the process of wording and re-wording motions and resolutions (Schepers and Sethi, 2003). Investors who use this approach tend to be institutions rather than individuals and there is evidence that firms have been responsive to investor voice on social issues (Angel and Rivoli, 1997). However, this strategy has certain ‘‘costs’’, particularly those associated with time. Much less common among the range of ‘‘voice’’ options is the practice of investing in firms that err in order to change them (Lewis and Mackenzie, 2000b). Nonetheless, there are a number of reasons to question how effective these voice strategies are likely to be. In some ways ethical investment can be regarded as a special form of institutional investment, with ethical investment funds placing pressure on firms to either avoid certain behaviours (in the case of a negative screen) or continue certain practices (in the case of a positive screen). It is therefore worthwhile considering the findings in the broader literature on institutional investment and firm strategic direction and its implications for understanding ethical investment. Much of the literature on ethical investment has assumed that once ethically invested funds attain a certain size, they will then be able to impact firm behaviour. This point of view ignores two key issues. First, it ignores the possible impact of the operation of financial markets on the value of ethically invested funds. In a situation where there is a class of assets which is more highly valued (like shares in ethical firms), this is likely to create incentives for financial market players to get involved in arbitrage and pairs trading. Secondly, it has been widely suggested that because of the competition between institutional investors and their need to show returns in the short run, institutional investors favour near term earnings and discount future earnings (Baker and Fung, 2001). While re-
Ethical Investment Processes and Outcomes search indicates that this myopia is more prevalent for some classes of institutions than others (Bushee, 2001; Cready, 2001), we would expect ethical investment funds to have reasons to focus on long term earnings. The greater the pressures for consistent returns, the more likely it is that institutions, including those that manage ethically invested funds, may encourage corporate strategies that maximise short run share price at the expense of social, environmental and ethical goals. Thus, ethically invested funds may actually encourage the very corporate practices, like downsizing and underinvestment in research and development, that they are seeking to prevent. The papers by Haigh and Hazelton, and Sparkes and Cowton provide conflicting views about the role that financial markets can play in encouraging corporate social responsibility. The literature on institutional investors and firm strategy also raise further questions about the ability of ethical investment to affect firm performance. While on the face of it increased levels of institutional investment in the United States, and elsewhere, seems to be associated with a general shift in strategic orientation of firms towards behaviours that maximise shortrun share price (Lazonick and O’Sullivan, 2000), detailed studies of managerial response indicate that managers have much more freedom in the face of investor pressure than might otherwise be expected. Useem (1993), for example, provides evidence to suggest that managers in United States firms have adopted a number of practices that blunt the impact of investor pressure. Thus, he shows that managers have proved relatively successful at encouraging investment from different types of shareholders that can act as a counter to the interests of institutions (see Useem, 1998). While Useem’s studies focus on situations in which managers have sought to limit the influence of institutions that demand short term returns, it may be the case that managers are able to balance the impact of ethical investors by seeking corporate funding from non-ethical sources as well. Useem (1993) also argues that while institutions may have more potential influence over corporate strategy and firm behaviour, in most cases this power is latent and institutions are unlikely to have the resources or the inclination to intervene directly in the management of the firm. For ethical investors this situation is even more problematic given that they tend to be
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minority shareholders in firms. While corporate codes have increasingly attempted to give rights to minority shareholders, they still tend to favour large shareholders. Furthermore managers have become increasingly sophisticated in the ways that they manage shareholder expectations. In this regard Useem (1996) demonstrates the increasing importance of the investor relations function in firms. The papers by Hummels and Timmer, and Hockerts and Moir in this collection, suggest that these practices are equally important when it comes to ethical investment. The broader literature on institutional investors and firm behaviour therefore reveals that there is not a simple relationship between ownership and firm behaviour. To use the language of agency theory, while principals, including ethical investors, may have more power, they are still dependent on managers to act as their agents. The impact of ethical investment on firm behaviour is thus indeterminant. That is, just because a firm takes funds from an ethical source, this does not ensure that the firm will consistently adopt an ethical stance in all of its operations. The paper by Waring and Lewer in this collection, which focuses on the implications of ethical investment for the human resource function, attests to the potentially radical consequences of ethical investment for key aspects of firm behaviour. It also suggests that there is need to move beyond macro level studies to a meso level of analysis which focuses on factors at the level of the firm that mediate investor pressure and which may prevent ethical investment from achieving its aims. Perhaps the most important contribution of the articles in this special issue is that they start to look beyond the debates about the relative financial performance of ethical investment and examine what many would consider to be the more important question of the extent to which ethical investment shapes corporate behaviour. The final two papers speak directly to this issue from the point of view of two interest groups that have sought to use capital markets and shareholder activism to influence firm behaviour. The paper by Guay et al. seeks to identify ways in which non governmental organisations can employ shareholder activism more effectively. The paper by Marens offers a sobering assessment of a decade of financial activism on the part of United States trade unions.
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There are a number of emerging developments aimed at enhancing the impact of ethical investment on both corporate and societal behaviour. For corporations, some argue that the concept of Total Social Impact (TSI) is a credible ratings system which incorporates better a firm’s impact on all its stakeholders and not just its shareholders (Dillenburg et al., 2003). The TSI metric scheme seeks to move beyond exclusionary or negative screens and actually modify business behaviour. These authors claim that corporations will respond to improvements in measurement techniques; in other words, there is an assumption that firm behaviour is influenced by the ability to measure its outcomes. The more comprehensive these measures for key stakeholder groups (e.g. customers, employees, owners, suppliers, competitors, communities, and the environment), the more effective will be the field of socially responsible investment. This exercise in benchmarking and measuring ‘‘best practice’’ ethical performance is supported in other contexts. Spiller, for example, classifies a similar model of ethical business in New Zealand including how firms rate according to an ethical ‘‘scorecard’’ (Spiller, 2000).
Future challenges Despite the growth in ethical or socially responsible investment, there are certain aspects about the field which still need to be addressed. For instance, because it is still seen as loosely or ambiguously defined, confusion still remains about what exactly constitutes an ethical investment (Schepers and Sethi, 2003; Sparkes, 2001). To date, the area has been largely self-identified by promoters. Environmental issues regularly feature on the social investment ‘‘radar screen’’ but there may be other areas such as the arts and cultural industries which, hitherto, have not been seen as ‘‘legitimate’’ areas for socially responsible investment (Williams and Sharamitaro, 2002). This oversight might be due more to its aesthetic, as opposed to moral (ethical) dimension (see Irvine, 1987). Nonetheless, the broad definition of ethical investment in the literature lends itself to various interpretations, including the lack of consensus about the issues that concern investors. This state of affairs is not aided by the lack of transparency
and disclosure of information to potential and actual investors. Some commentators have posed the question ‘‘what is ethical about ethical investment’’? (see Schwartz, 2003; Sparkes, 2001). To describe something as ‘‘ethical’’ conveys the impression that there is an element of altruism and self-sacrifice involved. A firm offering an ethical fund to investors suggests that the firm has chosen to embrace a higher level of accountability and responsibility. Therefore, it is not unusual for it to be judged more stringently (Schwartz, 2003). But it has also been argued that socially responsible funds ‘‘show little explicit ethical awareness, as their main objective appears to be to maximise investment returns within the constrained investment universe available to them’’ (Sparkes, 2001, p. 198). It is not surprising then that more attention to the issue is needed. As some have concluded ‘‘Only when the ethical investment movement is ethically screened can it be deemed ethical’’ (Schwartz, 2003, p. 212).
Conclusion This paper has provided an overview of current debates about ethical investment. It has demonstrated the complexity of many of the issues raised by this topic including the motives of socially responsible investors, the different types of screening processes involved, the mixed evidence concerning the financial return of ethical funds, and the links between ethical investment and corporate behaviour. Overall, we need to see ethical investment in its entirety and not disaggregate its central features. We would argue that for these reasons there is considerable benefit in an approach which treats ethical investment as a process and examines all the connections and disjunctures that take place within this process. Taken together, the papers in this collection (drawn from a wide variety of disciplines and national contexts) provide new insights into the process and outcomes of ethical investment from the decision by individuals and institutions to invest right through to the consequences of ethical investment for special interest groups. The papers illustrate the breadth of research taking place in
Ethical Investment Processes and Outcomes connection with ethical investment and the variety of perspectives that can brought to bear on the topic.
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This special issue of the Journal of Business Ethics had its origins in a one day workshop on ethical investment financially supported by the International Centre for Research on Organisational Discourse, Strategy and Change (ICRODSC), the Accounting Foundation, and the School of Business at the University of Sydney. The best workshop papers were submitted for consideration of publication as well as a general call for papers extended to scholars outside of Australia.
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Work and Organisational Studies, School of Business, Faculty of Economics and Business, University of Sydney, Sydney, NSW 2006, Australia E-mail:
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