Ethical investment is really, really difficult

Investors with ethical or socially responsible investment preferences face a really tough challenge meeting their goals, as the Archbishop of Canterbury and Wonga row has demonstrated.

After claiming that the Church of England would try to force Wonga out of business by supporting credit unions, the Most Reverend Justin Welby claimed to be “embarrassed” and “irritated” that the Church had invested indirectly in the controversial payday lender.

Despite having an ethical investment advisory group, the Church of England inadvertently invested in US venture capitalists Accel Partners, which led a fundraising round for Wonga in 2009.

This means the Church made an indirect investment in Wonga of around £75,000, out of total investments of £5.2bn they manage.

The ethical investment restrictions practised by the Church apply to companies with activities in pornography, tobacco, gambling, alcohol, military products and services, high interest rate lending and human embryonic cloning.

The Church’s ethical investment advisory group “recommends against investment” in certain companies, including those which derive more than 3% of their income from pornography, 10% from military products and services, or 25% from any of the other restricted industries.

Ethical investment is and always has been very challenging.

Back when I was a representative of a life assurance company, I remember one of our competitors marketing a ‘dark green’ (very ethical) investment fund which invested heavily in a restaurant chain which made around 40% of its profits from the sale of alcohol.

Every investor has different ethical and socially responsible preferences, with many content to allow fund managers to make decisions and simply not invest in anything which might be considered overtly ‘evil’.

Those investors who do have ethical investment preferences should spend time with their investment adviser discussing, in detail, the restrictions they want to see in place and how they wish to see their portfolio allocated in order to do good in the world.

Even then, as the Church of England and Wonga story has demonstrated, there are no guarantees that something unethical will not slip through the net.

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