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Posts Tagged ‘ethics’

As the spokes are coming off of the global financial system, we have all had a chance to witness how the sausage is made…and it is really scary. 

 

Most outsiders, like me, assumed that a post-SOX world would ensure safe and transparent investments for the masses.  As we now know, things have only gotten worse.  Corporate behavior, especially in the finance sector, has been exemplified by the events surrounding Madoff and the obscene compensation packages on Wall Street.

 

As an optimist, I view all these events as a huge market correction which will alter how business is done in the future.  At the core of this correction, everyone from CEOs to hedge fund managers will have to re-discover new ways to attract capital.  I believe that this unending search for capital, in a free market, will require that firms embrace a socially responsible paradigm for interacting with investors, regulators, and the environments. 

 

Today, SRI is an alternative strategy for the highly enlighten.  Tomorrow, it will be the battle cry of every firm wanting to survive in a 21st century economy.           

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As bond funds and foreign debt are becoming more accessible to the average-Joe investor, the fixed income industry has overlooked some fundamental social considerations.  In many cases, fixed income is seen as a more passive alternative when compared to equity markets.  Upon further inspection, it becomes clear that a lack of social due diligence regarding your bond portfolio can lead to the same social pitfalls as a hastily selected stock portfolio.    

 

In my opinion, there are two main mistakes that even the sincerest investor could make when selecting bonds.  Fortunately, there are some valuable resources available to help prevent oversight.  The following examine the social pitfalls and then looks at practical solutions for every-day investors:

  

                Corporate Debt:

It is important to be wary of corporate debt that may support firms that leverage questionable labor practices.  This is most prevalent in unregulated emerging economies where astronomical GDP growth is overshadowing labor issues that include high risk activities and child labor.  Today, the returns coming from developing economies can cloud even the most grounded fund manager’s judgment. 

 

Many international organizations and think-tanks are striving to keep pace with developing economies by creating new and updated labor indices to assist investors with ethical decision making.  I have aggregated some of the leading labor indices and databases for reference:   

 

·        International Labour Organization Child Labour Database

·        The US Bureau of International Labor Affairs

·        Calvert Social Index (great for on-shore portfolios) 

 

Emerging Sovereign Debt:

The second pitfall looks at emerging sovereign debt and examines how government policies affect humanitarian issues within their state.  It is important to realize that taking on the debt of emerging counties indirectly supports their human rights policies and foreign policies.  As responsible investors, we need to be aware of a nation’s humanitarian track record before picking up foreign treasuries or similar types of debt.  Listed below are some useful resources to assist in the social due diligence process:

 

        ·       Universal Human Rights Index of the United Nations

·        Freedom of the press Scale

·        Political Terror Scale 

 

I’m currently aggregating a list of my 10 favorite socially responsible funds and portfolio managers.  I’m hoping to get these posted soon.  These two top-ten lists will be a great way to augment the social and political indexes listed in this post. 

 

Copyright © 2008 David van der Roest

 

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“Is it possible to make ‘the big bucks’ and sleep at night at the same time?  This blog explores ethical and sustainable investment alternatives that are making competitive returns.”

 

Don’t worry!  We can still make some money while at the same time avoid selling your soul to the money gods.  It is often assumed that financially-motivated individuals are just out for the money.  I believe that there are many money managers and investors out there today who are concerned with more then just the bottom line.  Personally, I feel it is important to invest in ethical and sustainable ventures.  Does this mean I will have to sacrifice competitive returns on my capital?  No!  This blog explores creative and practical ways to make your money work, but not at the expense of others’ well-being.  Like all successful investment strategies, a healthy dose of due diligence is required, but it is well worth the price.  I look forward to exploring this worthy subject in more depth in the near future.  Thanks for reading.

Copyright © 2008 David van der Roest

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