The field of Ethical finance

In this blog, I would like to share the recent developments in the ethical finance domain of the financial services. Ethical finance has been a hot topic for a considerable time now. My business school had a block module(an action packed one week course) on this topic. One of the highlights was the the role of ethics and values in finance. It is amazing that, most of the headlines in FT/WSJ are full of issues related to this field, albeit for the wrong reasons. The Goldman Sachs-Abacus issue related to John Paulson or the trader at Societe Generale,leaving aside the 'n' number of Ponzi schemes run under the name of secured portfolios.The latest being the case of Helmut Keiner, the german hedge fund manager who defrauded investors for £249 million. This case is turning into an ill thought script for a novel. The Ponzi schemes are actually the most convincing reason for the existence of Socially responsible investments.They bring the ethical question into critical focus.As they put their hard earned money into a fund, investors have an absolute and unquestionable right to know the nature of their portfolio.This is what is done by SRI's. In the same veins, the course of ethical finance has helped me to understand the tremendous size and scope of socially responsible funds and its wider implications. According to one estimate currently the $1.2 trillion of funds are managed by SRI's(Socially Responsible Investments) and this figure is increasing. The latest development in the SRI funds is to provide an opportunity to investors to "mix and match" companies or investment that are highly consonant with their individual values. For example investors can set filters for selection of companies, by preferring companies that pollute less, use better recycling systems or even address global poverty reduction issues. This model has been developed long back and has recently(not so recent though) picked up, from an unexpected quarter, the middle east, viz. Islamic finance. Wrapping up, the key emerging trends are related to,

1.I think the most important value that ethical finance has managed to address is: transparency. Since SRI's give an options to investors to filter out their selections they become more open and this reduces the chance of large scale fraud(read ponzi) by multiple factors.Funds that address this important value are more likely to fall under ethical ones rather than just complying the checklist for SRI guidelines and principles. So transparency+ Filter options = nearly ethical fund/investment
2. Tremendous opportunities to raise capital by tapping the SR investors. Once the company adhers to the value of its investors it can raise capital at favourable rates and terms.

Way to go in the future, but will it go this way lets see !