How solid business moral values woo ethical investment funding
Former Niko Fiti brand ambassador Esther Ingolo (right) with Mombasa County officials during a past corporate social responsibility campaign in support of persons with disabilities. PHOTO | CORRESPONDENT
An ethical investment fund uses moral principles to choose what stocks to invest in by eliminating what is considered to be unethical such as investment in alcoholic beverages while focusing on what is seen as decent such as green energy.
The ethical fund is commonly used by religious practitioners or other institutions with strong moral background and may only invest in firms with strong ethical values.
Such a fund considers the ethical policies of the companies it wishes to invest in and seeks information as to their policies and risk factors.
Therefore, to attract an ethical fund or investor, you need to be very clear on your moral principles.
These should be set out in the vision and mission as well as the values of the company. An ethical investor would want to know what your moral foundations are or what reputable business you support. A good example is a company that promotes clean energy. Green funds invest in only “green” companies.
As an ethical investor, you should also consider the corporate social responsibility (CSR) indicators in stocks you seek to invest in, such as their environmental, social and governance principles.
An ethical investor does not invest in companies that have bad governance practices such as corruption. They instead use their influence to invest in firms with sound practices such as environment conservation and avoid those engaged in pollution.
A company with good human resource policies also attracts an ethical investor.
Where do you start out as an ethical investor? First, get information from the companies in terms of policies and CSR allocations.
An ethical fund uses such information to assist it in preparation of the prospectus for clients who wish to be part of the fund. You should look at the company’s commitment to ethical practices, its track record, impact on the community and returns.
The information will help you make a good investment decision. Remember at the end of the day, other than promoting your ethical values through investment, you are also looking to make a good return from the company.
The CSR has no clear-cut definition, but is determined by the corporate interests and it is self-regulated — for example, in the CSR department policies. It is also voluntary.
The CSR involves several stakeholders such as employees and the community. Therefore, it involves a wide range of interests other than those of the shareholders.
The CSR should align the social and economic goals of a company without conflicting with the firm’s profitability and economic performance.
Firms should benefit economically from the CSR, which is about practices and values that are determined by personal values of the managers as they formulate the policies.
The CSR manages externalities such that it is not concerned with the effects of economic behaviour of others on it. It is about philanthropy, that is, how its operations impact positively on society.
I am not aware of existence of an ethical fund in Kenya. However, there are many ethical investors locally and globally.
To attract such investors it would be prudent for your business to have a strong moral foundation.
This does not have to be complicated. Something as simple as a strong staff welfare would attract such investors. Good governance and zero tolerance to corruption would also attract such investors. Your business could also look into what CSR activities to be involved in because they attract ethical investors.
Ms Mputhia is the founder of C Mputhia Advocates. Email: [email protected].
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