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Word Clash - A look at Sustainability, ESG and ‘Ethical’ Investing

Friday 11 November, 2016

As a lawyer that also studied journalism at University I’ve always had a thing for words. Perhaps it is no surprise that I am now a Director of The Banking and Financial Services Oath, a Hippocratic-type oath for the finance sector that through the careful selection of words promotes ethical principles.

The fact is that words may be the most powerful thing we have. Our significant moments are marked by words. The focus of a wedding ceremony is the vows, words planned and spoken. When a lawyer is admitted to practice they are ‘sworn in’. When international summits are held, it’s the words that form the binding accords and compacts.

We regularly rely on a person’s word and we rely on the promises, by way of words, of companies that provide us products and services. We trust that when something has a certain label that it is what it says it is.

Sometimes words can become loaded, be overused to the point of being called a ‘buzz word’ and others can actually mean a variety of things, subject to varied interpretation.

Perhaps this is where we are at with words such as responsible investment, sustainability, ESG (environment, social, governance) and ethical – all words now commonly used in the investment context.
However, can these words be relied upon by analysts, directors and importantly investors?
If one were to invest in a socially responsible or sustainable investment option, they would rightly believe that the companies of which they were to become owners were in fact sustainable and sought a balance between financial return and social good. If they chose an ethical fund they may expect even more.
How then does the finance sector explain the inclusion of Big Tobacco in the Dow Jones Sustainability Index? In fact, BAT promote their inclusion in the Index on their website stating that they are an industry leader for the 12 th year running, providing a positive promotional opportunity of which they are now severely restricted.

It is not uncommon to find tobacco companies, which produce cigarettes that are responsible for the deaths of two out of three smokers, [1] in RI (Responsible Investment) and SRI (Socially Responsible Investment) options provided by mainstream financial institutions.

The reason these stocks are included is due to the ‘best of sector’ approach adopted by ratings agencies and others in the investment community. ‘Best of sector’ means that no company is excluded and companies are only judged against their peers. Therefore at least one tobacco company will get a triple A or three green stars for environment even though cigarette butts are the number one littered item worldwide, fouling waterways, toxic to the environment and non-biodegradable [2].

That big tobacco could get a AAA for ‘social’ seems astounding when the world is on track for 1 billion deaths this century from tobacco-related illness [3] and the likes of Bill Gates and Michael Bloomberg have set up a fund to help poorer nations defend anti-smoking laws designed to protect their people.
This reality should lead us to question not just the data but also the words that we attach to it.
Words can only live up to their meaning when our actions match. Whilst the finance sector is undoubtedly focused on the numbers, a careful look at the bourgeoning area of responsible and ethical investment highlights that words matter too.

Interest in responsible and ethical investment is undoubtedly a good development for both the finance sector and our community more broadly. Perhaps the worst thing that could happen to this movement is that investors are misled and lose trust in the system.

A critical look at the data, the methods of analysis and the promises (explicit and implied) should be the first step in ensuring we can in fact rely on the words that many of us find so attractive when it comes to our investments and the way we want to live.

[1] Banks et al, Tobacco smoking and all-cause mortality in a large Australian cohort study: findings from a mature epidemic with current low smoking prevalence. BMC Medicine (2015) 13:38 <>


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The Oath

  • Trust is the foundation of my profession.
  • I will serve all interests in good faith.
  • I will compete with honour.
  • I will pursue my ends with ethical restraint.
  • I will help create a sustainable future.
  • I will help create a more just society.
  • I will speak out against wrongdoing and support others who do the same.
  • I will accept responsibility for my actions.
  • In these and all other matters;
    My word is my bond.