The performance and rationale of European ethical funds : an ethical perspective
This dissertation examines whether ethical investment funds are good investments in comparison with other stock market investments for individual investors. Firstly, the financial performance of ethical funds was analysed using traditional risk adjusted performance measures. Performance was first compared with market benchmarks and then in comparison with other funds using a 'matched pair' approach (Luther, Matatko and Corner 1992; Mallin, Saadouni and Briston, 1995; Gregory, Matatko and Luther, 1997). This analysis indicated that the financial performance of ethical funds was not significantly different from market benchmarks and other funds. It was therefore concluded that ethical funds were good investments financially. A second empirical study used field research to examine the policies and processes of ethical funds. Two complementary strategies for dealing with ethical issues were identified; screening and engagement. Screening involves the use of exclusionary and/or positive ethical criteria in the stock selection process. This study indicated that ethical funds had a number of processes in place to address ethical issues. These processes included ethical screening; ethical advisory committees; specialist ethical researchers and use of other organisations. In terms of the policies and processes employed by ethical funds they were "good" investments compared to other funds. This confirms previous findings that ethical funds, although not a "panacea" were an improvement over other funds and that some ethical funds engaged with firms on ethical issues (Cowton, 1999; Mills, 2000; Friedman and Miles, 2001). Finally, ethical history and Church perspectives are employed in a tentative analysis of whether ethical funds are good investments ethically (Mackenzie, 1997). This preliminary analysis made it clear that some ethical funds would not be good investments in a moral sense for certain investors.