11th Dec , 2019
It is often assumed that the objectives of social good and maximising profits and returns are a contradiction and mutually exclusive. However, the evidence suggests this is not the case, with “ethical” funds out-performing their comparative rival funds.
As per Clare Page, the global strategy chief of the Tobacco Free Portfolios Social and Ethical fund returned 6.3% over 10 years against comparable funds of an average of just 3.8%. Deutche Assets and Wealth, together with the Hamburg University, found a strong correlation between implementing good environmental, social governance and sound financial performance.
Page further suggests that the long term superior financial performance of the ethical funds may be due to a wider range of risks that have been fostered into the ethical portfolios. Any good business coach will tell you that the reality is that ethical concerns also include how a business treats its own people, its customers and suppliers.
Poor people policies can lead to higher risks of demotivated and relatively unstable work forces, which in turn can lead to high staff turnover and gaps in critical areas of succession plans, and then to poor operational and financial performance.
Poor ethical relationships with customers can prove fatal for these all-important relationships, which should be fostered long term. And since ethical awareness is increasing among customers, their tolerance of lapses will drop and the speed of reputational risk in this age of instantaneous social media contact can be substantial in a short period of time.
Poor ethical relationships with suppliers can lead to the suppliers not wanting to continue to supply the business, which may lead to a bottleneck and inability to supply customers’ demands on time or possibly not at all. This would feed into a loss of reputation with customers and potentially damage the business financially, regardless of the business growth strategies it has in place.
As a result of greater ethical awareness, there is a growing trend for institutional and individual investors to place an emphasis on ethical investments in their portfolios. According to a 2017 Responsible Investment Association survey, 9 out of 10 consumers expect their superannuation to be invested ethically. The same survey suggested that 1 out of 2 dollars is now being invested in ethical investment strategies.
The scope of ethical investment strategies range from not investing in potentially harmful industries such as tobacco, gaming or armaments through to companies with strong stewardship and sustainability and a record of delivering positive social and environmental outcomes.
This trend to greater ethical investment support has now moved into investments such as Social Benefits and Green Bonds, with a balance of measurable outcomes in the social and environmental benefits in conjunction with reasonable financial returns.
Find out how a business coaching professional from International Business Mentors can help you focus your business on evolving better ethical objectives and policies together with sound business strategies, enabling you to gain better ongoing support from your investors, business relationships, customers, staff and the wider community. Contact us today to learn more.