Ethical investment can be described as a set of approaches which include social or ethical goals or constraints in addition to more conventional financial criteria in decisions over whether to acquire, hold or dispose of a particular asset, particularly publicly traded shares.
In contrast with mainstream or “economic”ť investing, risk and return are not the sole dimensions of interest ”“ though they are still likely to be important. In ethical investment, it is the nature of the source, and not just the size and risk, of the financial return that is of concern. (Cowton, 2004).
The perspective that corporate management is responsible for the social impact of its activities, as well as, for its economic and financial results, is well entrenched. However, the history of the relationship between corporations and society has a long, complex and frustrating history. Notwithstanding this history, society has increasingly come to expect, and to demand, that corporations manage their assets in a socially responsible manner. These expectations have grown exponentially over the past three decades because stakeholders experience the results of corporate behavior; influence the standards by which that behavior is judged; and evaluate how well companies and managers perform according to those standards.
Although, society has for centuries expected organizations to recognize the rights of individuals and of other organizations, the primary focus was on stockholders and profit. Fifty years ago, properly responding to economic market forces were essentially all companies had to do to be successful. This is definitely not so in the current global business environment. In today’s society there are non-market forces, which exert powerful influences on every aspect of business operations to which managers respond. By responding in a legitimate and timely manner to societal expectations, businesses accrue more credibility in the debate about, and reaction to, the premise that a healthy society is impossible without healthy institutions.
The origin and characteristics of ethical investment
Ethical investment helps to make a positive change for climate change and other environmental and social issues, by investing in responsible and sustainable projects and industries. (Sparkes, 2002).
Ethical investment is also about making sure you know what your money is doing. If you’re making personal efforts to reduce your water and energy use, taking public transport, and recycling, then your money should be working to make a positive difference
Recent social trends have sparked a dramatic increase in the steady rise and growing influence of socially responsible investment, where financial stakeholders make investments according to social, political and/or environmental values.
This phenomenon signals a paradigm shift in the corporate/stakeholder relationship. The most successful businesses will be those that are able to maintain sustainable competitive advantage in a global environment increasingly focused on social and environmental concerns.
The origins of ethical investing date back many hundreds of years. In early biblical times, Jewish laws laid down many directives on how to invest ethically. In the mid-1700s, the founder of Methodism, John Wesley, emphasized the fact that the use of money was the second most important subject of New Testament teachings.
Socially responsible investing in the US goes back at least 300 years to the time of Methodist and Quaker immigrants who used an early form of social screening to prevent investments which profited from killing or enslaving fellow human beings.
For hundreds of years, many religious investors whose traditions embrace peace and nonviolence have actively avoided investing in enterprises that profit from products designed to kill fellow human beings. Many avoid the “sin” stocks ”“ those companies in the alcohol, tobacco and gaming industries.