Invest to make big business behave better

Written by Lisa Stanley Mann on 30th October 2016

What’s the best way to drive behaviour change in the world’s biggest companies? Refusing to buy the products of those companies you think are a bit rotten? Or buying from those that seem pretty decent?

According to new research from Rathbone Greenbank Investments, thousands of socially-conscious people could have a much greater influence on company behaviour if they were to get into ethical investing, instead of focusing on what they do and don’t consume.

Only 12 per cent of those surveyed had their pension invested in ethical funds, while just nine per cent were involved with social impact investing. Seven per cent used shareholding to influence corporate activities.

Although consumer activism and boycotting is a long-established tactic to encourage change, its results are often limited.

For example, despite numerous campaigns in the aftermath of last year’s emissions scandal, car manufacturer Volkswagen’s sales for 2016 have been largely unaffected. The German car giant is now continuing with an aggressive growth strategy that it hopes will see it overtake Toyota as the world’s biggest automotive manufacturer.

However, some shareholders are becoming increasingly activist – and it’s working. ShareAction contacted 100 global investors in BP ahead of the company’s AGM, outlining the operational, economic and reputational risks of its Great Australian Bight oil drilling project. Following pressure from investors and NGOs, BP subsequently abandoned its plans, demonstrating the benefits of getting stuck in:

via GIPHY

The research also found those who take financial advice are more likely to engage in socially responsible investing, use shareholding to influence a company’s activities and put their pension into ethical funds.

Rathbone Greenbank has issued five pointers to those who want to make companies raise their game:

  1. Your financial objectives can be achieved while staying true to your values – companies with high ethical standards and sustainable business practices are likely to make good long-term investments.
  1. You can use your money to help build a better future for everyone. Ethical investment is not just about what you don’t invest in, it’s also about where you do invest. For example renewable energy, healthcare, education and affordable housing.
  1. Investing ethically can bring about corporate change. Shareholder rights can be used to vote at annual general meetings guiding the direction of companies. For example, with regard to executive pay or social and environmental reporting.
  1. Investment can be a powerful force for good. The inclusion in the Modern Slavery Act 2015 of the transparency in supply chains initiative (requiring large companies to report on the steps they are taking to prevent modern slavery within their supply chains) came about through investor activism.
  1. Public scrutiny demands strong stewardship – charities need to make informed financial choices in order to ensure that their investments do not conflict with their mission.

John David, Head of Rathbone Greenbank Investments, said:  “Avoiding companies that contradict personal values and actively making ethical choices as a consumer is a great first step, but the possibilities for any long-term, tangible impacts often stretch beyond simply boycotting a particular brand or product.

“What’s needed now is an effort to increase awareness of the power of ethical and sustainable investment and shareholder engagement in changing the mindset and direction of a company.

“Not only must advisers continue to steward and promote ethical choices among clients, but the ethical and sustainable investment community needs to work harder to increase consumer awareness and understanding of the choices available.”