A history of ethical investment

Ethical investment has never been static, and now, more than ever, it is evolving to take into account the full range of values that individuals or organisations would like applied to their investment portfolios.  In practical terms, whilst the application of these criteria can be analysed and segmented into specific concepts such as ethical investing, green investing, socially responsible investing, sustainability investing, thematic investing, and engagement, our clients tend to favour an approach that aligns the whole of their investment portfolio with their values.  A Rathbone Greenbank portfolio would therefore tend not just to exclude areas that are of concern to you, but to include investment in areas that you wish to support. 

Origins

The origins of ethical investment lie with the pioneering work of faith-based investors. John Wesley’s classic sermon on ‘The Right Use of Money’ stimulated the Methodist Church in North America to seek to avoid companies involved in gambling and alcohol production when investing in the fledgling stock market in the 1920’s.  Similarly, the Quaker movement began to formalise its relationship with investment, excluding investment in armaments manufacture.

Objections to the underlying activities of certain companies continued to grow, and in the 1970’s individuals concerned about involvement in the Vietnam war were crucial in creating the demand for investment products which would avoid involvement in the conflict. The first PAX Fund was launched in the US in 1971, avoiding companies involved, for example, in the manufacture of ‘Agent Orange’.  Similarly, the 1970’s saw the rapid development of the modern environmental and civil rights movements. Concerns about human rights and the environment were becoming mainstream, as was the notion of boycotting companies which did match the values of the investor.
 
It was in this context that Charles Jacob, a Methodist fund manager in the UK, first proposed an ethical fund in 1973. Importantly, his proposal involved not only avoiding controversial activities, but also emphasising positive values. Whilst the idea failed to gain the approval of the regulators at the time (due to concerns about potential conflicts of interest among trustees), the idea gained support throughout the decade, and in the early 1980’s prominent Quakers working at Friends Provident offered Jacob the chance to put his idea into practice.

Modern day development

With regulators now on-side, the first ethical funds were launched by Friends Provident in 1984.  Named the ‘Stewardship Funds’, they took their inspiration from the faith-based pioneers of ethical investment, though added modern concerns such as support of the Apartheid regime in South Africa to their ethical screens.

However, the debate between applying ethical concerns and the fiduciary duty to maximise returns raged on, especially in the UK. The Bishop of Oxford sought to have the Church of England’s investments managed not only to maximise returns, but to do so in a manner consistent with the purpose of the church. The newly formed Christian Ethical Investment Group (established in 1988) was pushing hard for a stronger ethical investment policy for the Church of England, and in 1992, joined the Bishop of Oxford to argue in the High Court.  Here, they argued that, in keeping with the Church's mission, the Church Commissioners should not invest in ethically questionable activities such as businesses operating under the apartheid regime in South Africa. The case sparked a re-evaluation of the Charity Commission’s guidance for charities seeking to invest their money. It is now widely accepted that charities can and should have regard to ethical criteria when investing their funds.

Since that time, ethical investment has grown steadily, both in terms of the size of the market and the number of investment options offered. Importantly, the movement has grown from its faith-based roots, and is now an approach suitable for all thoughtful investors. Climate change, Human Rights and Fairtrade are, amongst many others, issues of concern for a growing number of people. Ethical investment has evolved to offer all kinds of ethical investors an approach which matches their values.

Our own history of involvement in ethical investment dates back to the 1990s when members of the team first started managing ethically screened portfolios. The service was developed, and in 2004 the ethical investment team at Rathbones was formalised under the name Rathbone Greenbank Investments. Taking inspiration for our name from Greenbank, the family home of the Rathbone family (many of whom were prominent philanthropists and social activists), we have been at the forefront of ethical investment for private clients, charities and trusts ever since. We look forward to the further evolution of the concept and application of ethical investment, and to continuing to give our clients the opportunity to align their investments with their values.

You can find more information about the history of ethical investment from the following websites:

• Charity Commission
• EIRIS Key facts & statistics
• The Bishop of Oxford's case
• Ethical Investments - moneyextra.com