Thursday, November 4, 2010

Ethical Investing - part 2

Each will have his or her opinion here. Religious groups throughout history have periodically condemned alcohol as the drink of the devil. There is no shortage of evidence to support that position. From the drunken brawls of youths in the towns of Britain on a Saturday night to the shattered lives of alcoholics and their families there is no question that drink has an evil side. On the other hand, most will probably argue that responsible drinking can add to the quality of life and indeed the medical industry even states that moderate drinking (equivalent to just one or two glasses of wine a day) is actually beneficial to health. 

Again there is no question that weapons in the wrong hands can cause death and destruction in the world. The American love of guns is the cause of thousands of deaths each year. Yet proponents of the gun lobby will argue that it is the right of every American to own a gun to defend himself and his family. Maybe so, but a colleague of mine spent three years in Houston, Texas, and he says the nightly news was always full of stories of those very guns being used in domestic disputes or being found and used fatally by children.

What about larger weapons that are used to fuel the wars and insurgencies in many parts of the world? Yes, it would be a more peaceful world if the manufacture of arms was abolished. But who is going to be the first to abolish them? What if pacifists had won the day in Britain at the start of World War II? Would Hitler have said let’s be fair lads, let’s not invade because they can’t defend themselves? I think not. A country has to have weapons to defend itself. With luck, they will never be used.

Is it a bad thing to invest in forestry? It is a sad sight flying over West Malaysia where nothing can be seen below for hundreds of miles other than neat rows of palm trees where once there was pristine jungle. No question that thousands of acres of rainforest are being destroyed every year and replaced by relatively sterile plantations.

Yet responsible forestry projects can still meet the needs of expanding populations by proper management and control. Many products such as bamboo are renewable and do not destroy large tracts of jungle. If investment in forestry stopped, the jungles would probably be destroyed at a faster pace. The key is to ensure that money is invested in companies that follow good environmental practices.

This is a very new and lucrative investment opportunity for the smaller investor since demand for funding cannot be currently satisfied by the traditional institutional sources of finance. But already I have heard objections to this relatively new alternative asset class with US citizens in particular concerned. The reason undoubtedly is that litigation in the US is out of control. You probably heard of the case a few years ago when a woman was awarded millions of dollars in damages against McDonalds because her cup of coffee burned her throat. And all expats who take out medical insurance will be aware of the restrictions on claims arising in the US. It’s not because doctors there are overpaid; it has more to do with the cost of insuring against malpractice.

The same situation does not prevail in the UK or other western countries. There, litigation funding is usually helping the small guy with a good cause to take on the big guys who otherwise would overwhelm him with their access to funds to fight him through the courts. So long as this is the case I see nothing unethical about helping to fund the smaller guy. Should the day come when ludicrous damages defy common justice then that is the time to pull the plug.

Clearly there is a good side and a bad side to everything. Sometimes the bad side is so bad that it cannot be defended. Maybe the lady who stood up and ostracized the fund manager for supporting the tobacco industry had the strongest case. As for the others, there is often a good side that would suffer if the bad side is attacked. Oh yes, and there is one other consideration; ethical funds often underperform conventional funds. This factor can often put to the test the level of resolve to support ethical principles!

Written by guest contributor -    

Eric Jordan
Managing Director
Professional Portfolio International Ltd.
209/1 K Tower, Tower B, 19th Fl., Unit 4
Sukhumvit 21 Rd.(Asoke), Klongtoey Nua
Wattana, Bangkok 10110, Thailand
Tel   +662 664 0968;  +662 664 0145
Fax  +662 260 7769 

No comments:

Post a Comment