“Ethical” investment

There has been a new upsurge recently in coverage of so-called “ethical” investment, and some mix of genuine and confected “outrage” over the investment of money in the shares of companies that may be involved in the production of various disapproved goods and services.  The main focus of attention has been on the government’s own investments – particularly those in ACC and NZSF –  and those of the government-promoted Kiwisaver funds, especially the default funds in which many people passively find some portion of their savings invested.  There even seems to be the possibility that some of these holdings may be illegal, and knowing/intentional breaches of the statutory ban on financing the production of cluster bombs carry very heavy criminal penalties.

In the Dominion-Post on Monday, Rob Stock had an article pointing out that moral concerns might not be limited to companies making cluster bombs, tobacco products, or whatever other product is particularly shunned right now.  I wasn’t entirely sure whether he was serious, or simply trying to highlight the absurdity of the whole business, but as he noted one could raise similar objections to holding the sovereign bonds of many countries based on the policies those governments run –  on his reckoning such a list could readily include Qatar, Israel, China, the US, Japan, Turkey, Russia, the Philippines.

Choices people make about what to do with their money are a moral matter.  Passively or actively, a person’s choices reveals what matters to them.  I’m a Christian, and so a believer in absolute truth.  But I doubt that would even lead to a unanimous view on what investments were appropriate, even among members of a single small local congregation.  How much greater is the difficulty in reaching a common view among much larger pools of investors, in an age when all faiths and none compete in the marketplace for ideas?

That is one reason why I remain staunchly opposed to the New Zealand Superannuation Fund.   In that fund, the government has taken money, by force, from citizens and invested it according to the moral precepts of those running the fund.  Actually, it is probably worse than that.  They’ll invest in anything (lawful), but will pull back if particular vocal lobbies succeed in creating too much perceived reputational risk for them.  It simply rewards the vocal, and the modern rent-seekers (pursuing a “cause” rather than personal profit) and forces minorities into investment holdings they may be quite uncomfortable with  (and in some cases probably keeps even majorities out of investments they might be quite comfortable with).

Some might be unhappy with investments in firms making weapons, tobacco products, involved in whale hunting, or in funding governments that apply the death penalty. Others probably have problems with coal or oil producers.  I don’t have a particular problem with any of those investments, but I do object to investing in (or having my taxes invested in), for example, firms associated with the Chinese government, or (US-listed) hospital chains providing abortions, or casino companies and so on.  My point is not to argue the merits of my particular concerns, but to highlight the near-impossibility of reconciling the range of individual concerns, individual freedom, and investments through large scale collective (particularly compulsory) entities.

In the genuinely private sector, and for schemes that are open to new money, there is a bit of a market test: funds won’t keep on investing in particular companies/products if investors are withdrawing their funds or new investors are going elsewhere.  But that doesn’t grapple with the moral point.   Personally, it leaves me uncomfortable with collective investment vehicles, unless they are very clear in advance of what sorts of companies, or governments, they’ll invest with.  You make your choices and I’ll make mine.  And all  but the most scrupulous –  or most morally indifferent –  will almost inevitably have to make trade-offs: what matters enough to adjust one’s investment (or consumer custom) in response to.

As it happens, I’m a trustee of a superannuation scheme –  the Reserve Bank Staff Superannuation and Provident Fund.   Our scheme is not a public body, isn’t subject to the Official Information Act,  and is not subject to any directions from either the Reserve Bank itself or the Minister of Finance. Neither the Crown nor the Bank gets any direct financial benefit from our investment choices.  We aim to ensure that we obey the law, and as the law requires, we seek to act in the best interests of members.  So the investments of our scheme are really only a matter for our members.  Probably the only thing the members have in common is that they work, or once worked (most are now retired) for the Reserve Bank.   Some will be smokers, some won’t.  Some will favour coal mining, others won’t.  Some will support Israel, others won’t.  And so on. Quite how the trustees of such a fund should invest, or avoid investing, is quite a challenge.  Since we have fiduciary responsibilities, it can’t just be on the basis of the personal preferences –  likes and dislikes –  of individual trustees –  let alone, some prevailing public “mood”.  In an age where one can no longer count on much common ground in values, morality etc, it is probably another reason to welcome the demise of old-fashioned workplace savings schemes.

6 thoughts on ““Ethical” investment

  1. The list of unethical immoral investments you refer to suggest many if not most are overseas repositories

    I have a pet aversion to local money finding its way overseas and creating jobs overseas


    • Why do you think investing funds overseas creates jibs? If you subscribe to new capital to make new prodcuction facilities you might contribute to overseas employment. But if you buy some shares on the secondary market you make no difference ot overseas jobs apart from the broker who makes the deal for you. Also, around a quarter to a third of what we consume is imported from overseas. It makes good sense to hedge a part of your savings by investing overseas, to protect against currency movements, etc.


  2. Whenever I hear of ethical investing, I start remembering the I,Pencil story. How is it possible to stay ethical in such a interdependent world.

    Administering an ethical investment policy is expensive especially if it is highly targeted at a specific form of military technology such as cluster bombs.


  3. resurrection of old-fashioned workplace savings schemes would be ideal: ‘two thirds of final salary with inflation protection’ – a typical arrangement? those were the days….. !


    • I know what you mean – and the RB scheme I’m a member of is like that (albeit not two-thirds) – but they impossible to properly price (given rising life expectancy), a lottery which materially reinforces lifetime earnings inequality among members, exposes members to any mis-government/mismanagement of the fund (over decades – between my wife and I I hope for perhaps 75 to 80 years elapsed membership from me joining to her death). And – the point of this post – they create all these issues around who decides,and how, on what are acceptable names to be exposed to (financing).


  4. And adding to the moral problems, what about the companies that supply the companies that make the cluster bombs? How many removes do you need before you have clean hands?


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