When a church, community or group of people buys shares or investments, they acquire part of the moral responsibility for what is done with their money. This brings potential risks and benefits beyond the purely financial.
If the operations of a company or fund are in conflict with the communityís or groupís mission or values, owning shares may cause reputational damage among members, beneficiaries or supporters.
For example, the company may be involved in making or selling armaments, alcohol or pornography, in gambling, or in forms of mining or forestry that harm the environment and local communities.
Or the company may exploit the labour of underpaid casual workers or maintain prices that put essential goods or services beyond the reach of poor people.
On the other hand, a church, community or group may invest in companies whose business is in tune with its aims - for example, those that develop renewable energy, promote co-operative ways of working, or have a progressive approach to community development or a reputation for good governance.
Faith-based and responsible investors adopt ethical policies and approaches to address such risks and opportunities, using three main strategies singly or together:
- negative screening or avoidance
- positive screening or support
- engagement or dialogue with companies to encourage better business practice.
The ethical investment sector - comprising funds that chiefly screen out companies and sectors considered unethical and select those considered more ethical - has grown rapidly in recent years. In the UK it is estimated to have reached £9.5 billion in 2009. A significant proportion of these funds are held by faith-based investors. In addition, the term 'responsible investment' is increasingly used to describe the approach of funds and fund managers that are committed to dialogue with companies about environmental, social and governance issues, and these represent a much larger total sum of the investment market.