3 ways to avoid a ticking time bomb of so-called ‘ethical’ funds

July 25, 2018 3:51 pm Published by Leave your thoughts

Agricultural chemical giant, Monsanto, has once again hit the news for all the wrong reasons. It is the subject of a lawsuit for allegedly causing cancer through its flagship weed killer, Roundup.

How does this relate to you?

This landmark legal case is just the latest controversy of a series dating back many decades including sale of terminator technology and misuse of power against small farmers. It is therefore somewhat surprising that the company features or has featured in several ‘ethical’ or ‘sustainable’ fund holdings. This latest controversy therefore serves as a warning: some so-called ethical funds may not live up to their mandate.

What’s the background to Monsanto?

The past justification for using Monsanto’s products is that they increase agricultural productivity and are therefore a positive influence. Coupled with stable profits this has therefore led to a number of funds including them within their holdings. However, the active ingredient in the controversial product Roundup has long been the topic of fierce debate in international and scientific communities over its health effects . As a result, thousands of individuals are now claiming that Monsanto knowingly exposed them to this potentially carcinogenic chemical.

What does this mean for your business?

Given the significant societal and cultural shift towards greater social responsibility, financial advisers must ensure that they continue to meet their clients’ changing needs. Including a fund within a portfolio whose holdings contain a company that places profits above human health and the environment may misalign with an investor’s principles and be viewed as a breach of trust.

Not only this but if the lawsuits against Monsanto are successful, or even if they generate enough negative media attention, Monsanto could see a fall in their share price which would negatively impact financial returns. In that case, having Monsanto, and others like it, as a holding in a fund may end up being a financial as well as an ethical burden.

What can you do?

1. Re-evaluate what you’re reading
An in-depth understanding of the fund that is based on fact rather than impression is key to ensuring that investors’ money is managed in a way that reflects their values. It is essential to look behind the names of these funds and ascertain exactly what they do, rather than relying on what they say.

2. Reassess where you get your information
Avoid the risk of unexpected and unwelcome stocks in a client’s portfolio by carrying out detailed due diligence from appropriate sources. One option is the Worthstone Impact Portal, which provides advisers with ratings on positive social impact, controversy exposure, ESG screening, transparency and financial confidence for over 215 collective investments.

3. Review your discovery process
Are you getting to the bottom of what clients actually mean when they say they want to do good with their money or be more ethical with their investments? Do they just mean avoiding tobacco companies? Excluding fossil fuels? Or do they want to be more active in channelling money towards funds with a higher degree of positive impact? Reconsidering your discovery process may help you to ask the right questions, which will then enable you to provide bespoke solutions.

If you would like a free 30-minute demo of the Worthstone Impact Portal, please email megan.lawrence@worthstone.co.uk.

Authored by Sarah Ison, edited by Megan Lawrence.

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