Ethical and Socially Responsible Investing
The wise philosopher Aristotle wasn’t against the accumulation of wealth. Rather, he saw it as a social good and a positive outcome produced from engaging in productive and useful work. In this way, Aristotle foreshadows the concept of “socially responsible investing” (SRI).
He observed that money was merely a medium of exchange and that true economy resulted from the cooperative activities of the citizens of a society in producing goods and services that were useful and beneficial to each other.
He also observed that those who only pursued the accumulation of wealth for wealth’s sake appeared to be insolent, overbearing and “affected as though they possessed every good.” In Aristotle’s version of the story of King Midas, pursuing wealth is unnatural, dehumanizing, immoral and unlikely to lead to happiness.
At MIDAS Financial, we believe that ethical or “socially responsible” investing is an investment methodology that stands on its own. Indeed, it makes no sense to mix this approach with other approaches.
The futility of combining SRI and SRI-neutral approaches to investing is illustrated by the example of installing jet engines on your energy-efficient sailboat so that you can get to destinations faster. These two objectives are mutually exclusive. Either you want to live a sustainable lifestyle or you want to go places faster – no matter the cost or the resources that are used.
MIDAS Ethical Methodology
The MIDAS Ethical Methodology is based on three basic principles.
The first principle is that profit can serve the common good. In other words, the power of profit can be harnessed to achieve ethical and socially responsible outcomes. Therefore, your own ethical and socially responsible goals can be achieved by applying your personal ethical and SRI criteria to a universe of companies that have been selected on the basis of profitability.
The second is the principle of sustainability which considers the consequences of a corporation’s activities over the longer term and across all stakeholders. As well, sustainability is measured in terms of equity and social impact, not just in financial terms.
For example, you may choose not to invest in a profitable company like Woolworths because it derives a significant amount of revenue from poker machines – which produce large profits but no socially constructive outcomes.
Thirdly, there is the precautionary principle. The precautionary principle deals with risk alleviation and can best be summarised by the phrase, “if in doubt, don’t.” This principle recognises that doubts about a decision often arise from conflicting data or a lack of information.
In the face of doubts, an experienced ethical investor will ask such questions as:
- What do I need to know to make a decision?
- What limits to our knowledge of the potential consequences of a corporation’s activities are acceptable?
- What qualitative (and, perhaps immeasurable) factors and questions need to be incorporated into my decision-making framework?
- How does my investment support this company towards more ethical and sustainable practices?
Value vs Values
The terms ‘value-based investing’ and ‘values-based investing’ are often thrown around in discussions regarding ethical investments and SRI and can easily be confused. However, as technical terms, they mean different things.
Value approach to investing refers to a method of selecting investments based on a quantitative calculation or determination of its intrinsic value (i.e. what it is worth) on the belief that over the long term, the market tends to revert to its intrinsic or fundamental value.
Therefore, various methods are used to try to accurately determine the intrinsic value of a company by taking into account such factors as financial performance, revenues, earnings, cash flows, assets, liabilities and profits.
The MIDAS Ethical Methodology is based on three basic principles.
Values-based investing means including extra (‘values’, ‘morals’ or ‘ethical’ related) rules when investing. There are many ways to do this. The MIDAS approach is to first define the investible universe based on a set of values and ethics by screening out those companies whose activities breach any of the ethical criteria (eg manufacture of weapons, promote gambling, employ child labour, etc).
Value-based investing combines investment “value” and investor “values” in order to design a selection of investments that are tailor-made to suit the specific requirements of the investor (you). While it uses some of the same social or environmental information as values-based investing, it does so within the investment selection process to improve performance.
In essence, the MIDAS Ethical methodology combines ethical, environmental, social and governance (ESG) insights with a detailed picture of a business’s value drivers in order to determine how the business will perform financially over the longer term. Integration of ESG factors into core investment processes is one of the best predictors of a company’s long-term success.
MIDAS Ethical Methodology Preparing an ethical investment philosophy is an exploration of one’s own ethics and values and how to implement them. The MIDAS Financial Ethical Investment Selection tools can assist you to create a financial strategy based on your personal ethics and values.”
About Us
Values-based investing means including extra (‘values’, ‘morals’ or ‘ethical’ related) rules when investing. There are many ways to do this. The MIDAS approach is to first define the investible universe based on a set of values and ethics by screening out those companies whose activities breach any of the ethical criteria (eg manufacture of weapons, promote gambling, employ child labour, etc).
Financial Strategy
Value-based investing combines investment “value” and investor “values” in order to design a selection of investments that are tailor-made to suit the specific requirements of you as the investor. While it uses some of the same social or environmental information as values-based investing, it does so within the investment selection process to improve performance.
Investment Service
In essence, the MIDAS Ethical methodology combines ethical, environmental, social and governance (ESG) insights with a detailed picture of a business’s value drivers in order to determine how the business will perform financially over the longer term. The integration of ESG factors into core investment processes is one of the best predictors of a company’s long-term success.
Resources
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