Veitch: Don’t overlook positive engagement in SRI

Neil Veitch 160 byline

To the layman, ethical investing must often come across as a very strait-laced and stern branch of the financial world. Most funds have a long list of industries that they will not invest in, lest they be accused of being less green or socially conscious than their peer group.

Many investors have strong ethical beliefs, which can stem from religious conviction or just their own moral opinions. Funds with a strong exclusionary bias are well suited to these individuals, who quite rightly wish to have investments which reflect their core values.

Being of a somewhat libertarian bent, I personally feel that investors should seek to keep exclusions (or ‘negative screening’ as it is often known) to a minimum. As someone who is known to enjoy both a drink and a bet (ideally at the same time!), I don’t feel that firms involved in the alcohol and gambling industries are by their very existence socially irresponsible. However, that does not mean that there are not specific concerns which must be addressed. Alcoholism and gambling addiction are both problems which inflict significant direct and indirect costs on society.

“If ethical investors were simply to exclude companies, their voice and ability to affect behaviour is massively constrained.”

By utilising positive screening and engagement, ethical funds can help influence companies involved in these industries to improve both their transparency and corporate behaviour. William Hill, one of the UK’s largest bookmakers, goes beyond legal requirements and actively supports a range of responsible gaming charities. However, the company’s responsibilities do not begin and end at this point – there are still other social and environmental impacts which should be considered. If ethical investors were simply to exclude these companies, their voice and ability to affect behaviour is massively constrained. This is why I advocate limiting the use of negative screening.

Of course, as an observant reader, I’m sure you’ll have noticed one of the industries I’ve strived to avoid mentioning – tobacco. Surely the same arguments made about engaging with gambling and alcohol firms apply equally to companies involved in this space? It is a valid point and worthy of further debate. On the one hand, having one cigarette is harmful both to the smoker themselves and those in the vicinity in a way that having one glass of wine or placing a single bet is not. Are there some industries which are just fundamentally incompatible with ethical investing? On the other hand, if ethical investors can use their influence as shareholders to improve the corporate behaviour of tobacco companies then is it not worth doing so? However, I believe that by its very nature, tobacco is a harmful product and it would not be appropriate to invest in those companies that profit from its usage.

There are no simple answers to these questions. Both individual funds and investors will come up with different solutions which reflect their own views. Luckily, there are a wide range of products which should cater for most needs. At SVM we have sought to keep exclusions to a minimum, believing that this is a stance which will benefit investors from a financial and ethical investment perspective.


Neil Veitch is co-fund manager of the SVM All Europe SRI fund