Thursday, 26 April 2007

Ethical Investment expert JULIAN PARROTT on the council's investment choice

City stake in BAE is not ethical

EDINBURGH City Council makes great play of its positive policies. It has gained Fair Trade status for the city, many of its Labour administration have expressed opposition to the war in Iraq and it has developed a corporate social responsibility policy for its investment role within the Lothian Pension Fund. It is therefore surprising to see that an apparently progressive council is under pressure for its investment in British Aerospace Systems (BAE).

Why is there such concern about BAE? It employs 2000 people in Edinburgh, generating jobs and revenue. Surely a positive investment for the city? The problem with BAE is that it manufactures weapons, and not only for HM Forces. It makes and markets its weapons to Saudi Arabia, Zimbabwe, and Indonesia to name just a few.

These countries are high on the Amnesty International register of oppressive regimes. Integrity for a company in this business is crucial, but last year BAE was investigated by the Serious Fraud Office (SFO) in relation to corruption in its dealings with the Saudi Arabian authorities.

Although this inquiry has been discontinued, BAE is still under investigation by the SFO regarding defence contracts in other countries.

Despite this, the city council has accepted a role for socially responsible investments in pensions management, and one has to ask is the investment in BAE just a question of profit over principle? BAE is profitable - it recently declared profits of £1.05bn. Much of this business is underwritten by the Government, and it's no coincidence that an upturn in fortunes has coincided with the Iraq war. Despite this, the "defence" sector as an economic element is not an important part of the UK economy, representing just one per cent, so the effect of omitting such a small sector is negligible to performance.

When considering ethical investment, the critics will often suggest it's too risky or it's impossible to screen effectively. But I'd rather the council sought to use the power of its money and consider the positive benefit that an ethical policy could have.

Money "talks", and when you invest in a company you have a vote on its activities. Today, more than £6bn is invested ethically in the UK investment market, and ethically invested money is increasingly impacting on the decision making processes of big business. If the current level of investment, mainly from private investors, was combined with large institutional funds, such as Edinburgh Council, we could really start to make some progress.

Establishing strong negative screening criteria may prove difficult for an organisation such as Edinburgh City Council, but surely there are some clear no-go areas for products such as arms and tobacco. Investing in sustainable industries of the future is surely the lead that an institution such as Edinburgh City Council should be taking.

A first step in this direction would be selling BAE and sending a clear message to the world that we don't want blood on our hands.


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Sabrina Garza said...
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