'Ethical' investment is booming

A recent Corporate Watch Australia survey reveals that many so-called ethical investment funds invest in uranium mining. The number has in fact risen significantly in recent years. This is sometimes justified with questionable arguments about nuclear power and climate change, but the primary reason is probably BHP Billiton's entry into the uranium mining industry with its 2005 acquisition of WMC Resources - and thus its acquisition of the massive Olympic Dam uranium deposit in South Australia.

Of 16 ethical investment funds studied:

• just two have policies that allow no investment in uranium or nuclear power - Australian Ethical Investment and Perpetual Investments;
• two have no policy - Sustainable Asset Management and Sunsuper;
• nine have policies that allow limited investment - AMP, Ausbil Dexia, BT Financial Group, Challenger, CVC Sustainable investments, Hunter Hall Investment Management, ING, Just Super and Local Government Superannuation Scheme;
• one is pro-nuclear - Atom Investment; and
• two had closed their ethical funds.

Of the funds that have limited investment:

• four allow investment in companies that get below a certain percentage of their income from uranium - AMP (5 per cent), Ausbil Dexia (50 per cent), ING (5 per cent) and Just Super (5 per cent);
• three screen out uranium mining but have no policy on other parts of the nuclear cycle - CVC Sustainable Investments, Hunter Hall Investment Management and Local Government Superannuation; and
• two screen out uranium mining for weapons production but have no policy on other uses of uranium - BT Financial Group and Challenger.

This information only relates to the companies’ “ethical” funds; most do not apply equally rigorous policies to all of their funds. A company can have an “ethical” fund as one of a range of different options, reducing ethics to a matter of consumer choice.

There are obvious ethical problems with this: for a start, it leaves decisions on whether to invest in a sector in the hands of the consumer, rather than the people whose land is being mined.

The “ethical” investment sector

Ethical investment is booming: from its origins in 1984 with a fund nicknamed “Brazil” - because you'd have to be nuts to invest in it - the sector is now worth $2 trillion worldwide. According to the Responsible Investment Association of Australasia, "Core responsible investment ... grew by 43 per cent in 2006-7 from $13.52 billion to $19.39 billion."

The same report states that from 2004 to 2007 in Australia, managed responsible investment portfolios grew from $4.5 billion to $17.1 billion.

However, this growth is accompanied by a crisis of definition and a dilution of its original principles. The concept “ethical investment” is vaguely defined, with no agreed set of rules. Fund managers make their own rules, and their definitions of “ethical” vary. Many funds now call themselves “sustainable” or “responsible” rather than ethical, but this has not resolved the lack of clarity. Any potential investor who wants to avoid certain sectors must do their own research and read the small print.

The sector is now more commonly termed “Sustainable and Responsible Investment” (SRI). In Australia it is represented by the peak body, the Responsible Investment Association of Australasia (RIAA). RIAA describes SRI as “an umbrella term used to describe an investment process which takes environmental, social, ethical or governance considerations into account”.

RIAA manages Australia's certification program for providers of responsible investment products and services. Certified companies can display RIAA's “Responsible Investment” symbol: however, there is nothing to stop any other fund calling itself sustainable, responsible or ethical without going through the certification process, and they frequently do.

According to James Thier of Australian Ethical Investment - one of the few companies to employ a rigorous anti-uranium policy: "'Sustainable' investment sounds like it is all about renewable or sustainable energy but it isn't. It is all about the sustainability of a company's profits and that is quite different."

In addition to the questionable ethics of some “ethical” investment funds, legal requirements to maximise shareholder profits influence the ethical investment sector.

Investment approaches

Ethical investment fund managers use three main approaches:

• “negative screening”, which rules out investment in certain unethical sectors;
• “positive screening”, which seeks investment in ethical sectors; and
• “best of sector”, which does not rule out any sector but seeks investments in companies that claim to be trying to become more ethical.

Other terms used are “light green”, for funds that are just a bit ethical, and “dark green” and “deep green” for funds with more rigorous ethical approaches.

The best of sector approach is often described as being in the middle of the ethical investment range, with negative screening at the “light green” and positive at the “dark green” end. This is inaccurate and simplistic: negative screens do at least define certain sectors as unethical and therefore unsuitable for inclusion in an ethical portfolio.

Best of sector investment does not rule out investing in any legal industry. A sector cannot be avoided on the grounds that it is simply wrong - if a company can show that it is making some gesture, however tokenistic, to improve its practices, it can be included in an ethical portfolio.

Another problem with these definitions is that the “deep green” funds - usually the closest to what ethical investment originally stood for - are seen as a niche market within a niche market.

A December 2007 article in New Zealand's Sunday Star Times describes Hunter Hall's Global Deep Green Fund as “for the most committed of alternative investors and activists”. This means less rigorous approaches are accepted and the more ethical options are sidelined.

A February 2008 report by London-based firm Holden and Partners concluded that most SRI funds were “surprisingly mainstream” in their choice of stocks.

Investment in uranium mining

In 2003, the Australian Securities and Investments Commission (ASIC) published guidelines stating that any investment fund sold on the basis of taking companies' environmental, social or ethical practices into account must publish which factors are taken into account and how in its Product Disclosure Statement. However, many of these statements are unclear. Furthermore, some claim to be anti-nuclear while having a threshold amount that can be invested in the nuclear industry.

Several fund managers use negative screens which rule out investment in companies that get more than 5 per cent of their revenue from uranium mining or nuclear power. This approach means that AMP's ethical portfolio can still include shares in BHP Billiton and Rio Tinto - the world's fifth and third largest uranium miners respectively. Investing in these companies means supporting some of the main drivers of the nuclear industry, even if only a small percentage of the money comes from uranium.

Ethics, uranium and nuclear power

Several fund managers that invest in nuclear power cite climate change as a reason. However, little effort is made to justify those arguments or to address counter-arguments. Briefly, the counter-arguments are:

• a global doubling of nuclear power at the expense of coal would reduce greenhouse emissions by less than 5 per cent with significant attendant risks (for example the reactors would produce enough plutonium to build over one million nuclear weapons); and
• a significant and growing body of scientific literature and experience demonstrates how the use of renewable energy sources and energy efficiency policies and technologies can generate major reductions in greenhouse emissions - without recourse to nuclear power.

Not a single repository exists in the world for the disposal of high-level nuclear waste, and few countries have identified potential sites for such a repository. This waste will pose public health, environmental and proliferation risks for thousands of years.

Nuclear power is the only energy source with a direct and repeatedly-demonstrated connection to the proliferation of Weapons of Mass Destruction. Of the 10 nations to have produced nuclear weapons, five did so under cover of an ostensibly peaceful nuclear program - India, Pakistan, Israel, South Africa and North Korea. Over 20 countries have used their “peaceful” nuclear facilities for nuclear weapons research.

The uranium mining industry has a poor track record in its dealings with Aboriginal communities. This ongoing pattern of behaviour cannot be reconciled with the inclusion of uranium mining companies in ethical investment funds.

The Mirarr Traditional Owners in the Northern Territory led a successful campaign against the Jabiluka uranium mine, but still have the Ranger uranium mine on their land. Yvonne Margarula, Senior Traditional Owner, wrote in a submission to a 2005-06 parliamentary uranium inquiry:

Uranium mining has completely upturned our lives - bringing a town, many non-Aboriginal people, greater access to alcohol and many arguments between Aboriginal people, mostly about money. Uranium mining has ... taken our country away from us and destroyed it - billabongs and creeks are gone forever, there are hills of poisonous rock and great holes in the ground with poisonous mud where there used to be nothing but bush.

Similar patterns of “radioactive racism” are evident in the management of by-products of the nuclear cycle. In 2006, the Australian government amended the Commonwealth Radioactive Waste Management Act to enable the imposition of a nuclear waste dump, without any consultation with or consent from Traditional Owners.

North American activist Winona LaDuke told the Indigenous World Uranium Summit in 2006: "The greatest minds in the nuclear establishment have been searching for an answer to the radioactive waste problem for 50 years, and they've finally got one: haul it down a dirt road and dump it on an Indian reservation."

The nuclear industry cannot be described as “ethical” given its inherent WMD proliferation risks, its legacy of high-level nuclear waste, its treatment of Indigenous people and the plethora of more benign methods to reduce greenhouse emissions.

While ethical questions are necessarily arguable, the nuclear industry has been repeatedly and comprehensively discredited. If the ethical investment market is to retain its credibility, it must employ more rigorous and more consistent ethical screens. There is a clear case for regulatory reform to ensure more transparent disclosure of investment in uranium mining and nuclear power.