The message and methods of ethical investment

This paper examines a high profile and often provocative segment of the financial industry: that of Ethical or Socially Responsible Investment. By offering an ethical or sustainable product which has the potential to influence so many stakeholders-the financial industry is in a unique position to guide change towards corporate sustainability. However, what message is ethical investment really giving to companies and the financial industry? Are ethical investors and their rating agencies capable of effectively influencing corporations towards more sustainable patterns of production and consumption; and are their approaches consistent with the principles of Cleaner Production? This paper first gives an overview some of the definitions 'ethical investment' and the scale of activities under this umbrella term. Then the actual screening methods and their application is examined. A typology of the different ethical mutual funds is given, and two cases of ethical funds are described (Robur's Environmental Fund, and Sustainable Asset Management's sustainability rating tool). Each are analysed in terms of their potential to either reveal or conceal cleaner production innovations by the firms they assess. In order to ascertain where Ethical Investment might lead companies, the effects of ethical investment on companies-and back on the asset management companies themselves is explored. A reflexive model of corporate and finance sector learning based on the ethical screens is proposed. (C) 2002 Elsevier Science Ltd. All rights reserved.