One of the things I’ve needed to confront recently has been the relationship between ethics and investment risk. Ethical investment portfolios are being offered by an increasing number of portfolio managers; and anyone thinking of making such investments needs to be aware that there is a trade-off between ethics and risk in today’s world. A portfolio manager mitigates investment risk by spreading funds over as many different classes of investment as seems reasonable. An ethical investment portfolio, however, excludes certain classes of investment (e.g. armaments, exploitative trades, investments in countries that abuse human rights) and therefore offers the portfolio manager less scope for mitigating risk. The difference is slight: in portfolio management terms, an ethical portfolio is generally seen as a medium risk, which might cause the more risk-averse investor to hesitate. At the end of the day, though, it’s a matter of conscience. Your pension may be more secure if invested in a low-risk portfolio, but do you really want to spend your retirement wondering if your security has been purchased at somebody else’s expense? I’ve had to make exactly that decision recently, in regard to that part of my own pension that is under my control. The same argument applies to any investment, of course: the more ways you have of spreading your money around, the more secure your portfolio is likely to be. As with everything relating to ethics, you’re either ethical or you’re not: there’s no halfway house!
Head of Ethics & Sustainability – BaP