'Ethical' investment is booming

According to James Thier of Australian Ethical Investment - one of the few companies to employ a rigorous anti-uranium policy: "'Sustainable' investment sounds like it is all about renewable or sustainable energy but it isn't. It is all about the sustainability of a company's profits and that is quite different."

In addition to the questionable ethics of some “ethical” investment funds, legal requirements to maximise shareholder profits influence the ethical investment sector.

Investment approaches

Ethical investment fund managers use three main approaches:

• “negative screening”, which rules out investment in certain unethical sectors;
• “positive screening”, which seeks investment in ethical sectors; and
• “best of sector”, which does not rule out any sector but seeks investments in companies that claim to be trying to become more ethical.

Other terms used are “light green”, for funds that are just a bit ethical, and “dark green” and “deep green” for funds with more rigorous ethical approaches.

The best of sector approach is often described as being in the middle of the ethical investment range, with negative screening at the “light green” and positive at the “dark green” end. This is inaccurate and simplistic: negative screens do at least define certain sectors as unethical and therefore unsuitable for inclusion in an ethical portfolio.

Best of sector investment does not rule out investing in any legal industry. A sector cannot be avoided on the grounds that it is simply wrong - if a company can show that it is making some gesture, however tokenistic, to improve its practices, it can be included in an ethical portfolio.

Another problem with these definitions is that the “deep green” funds - usually the closest to what ethical investment originally stood for - are seen as a niche market within a niche market.

A December 2007 article in New Zealand's Sunday Star Times describes Hunter Hall's Global Deep Green Fund as “for the most committed of alternative investors and activists”. This means less rigorous approaches are accepted and the more ethical options are sidelined.

A February 2008 report by London-based firm Holden and Partners concluded that most SRI funds were “surprisingly mainstream” in their choice of stocks.

Investment in uranium mining

In 2003, the Australian Securities and Investments Commission (ASIC) published guidelines stating that any investment fund sold on the basis of taking companies' environmental, social or ethical practices into account must publish which factors are taken into account and how in its Product Disclosure Statement. However, many of these statements are unclear. Furthermore, some claim to be anti-nuclear while having a threshold amount that can be invested in the nuclear industry.

Several fund managers use negative screens which rule out investment in companies that get more than 5 per cent of their revenue from uranium mining or nuclear power. This approach means that AMP's ethical portfolio can still include shares in BHP Billiton and Rio Tinto - the world's fifth and third largest uranium miners respectively. Investing in these companies means supporting some of the main drivers of the nuclear industry, even if only a small percentage of the money comes from uranium.