Feature – Sin stocks
THE WAGES OF SIN
Sin is dead. Forget about exclusions and divestment, these days no company is damned. All stocks are virtuous now, though some are more so than others. Partly this shift in attitudes is because there is no agreed defi- nition of what constitutes a sin stock. Historically, sin stocks have been seen as a holding in a company that undertakes an activity or sells products that goes against the morals or ethics of a particular group of investors. Cindy Rose, head of responsible capitalism at Majedie Asset Management, explains that is difficult to find consensus on what activities or products constitute ‘sins’, with some people finding alcohol, abortifacients or pork products to be areas of avoidance, whereas others might find them to be acceptable investments. “There’s no single, definitive list of what constitutes ‘sin stocks’, which are avoided purely on ethical/moral grounds – not for financial reasons based on the underlying fundamen- tals of the company, sector, product or activity,” Rose says. Along with some confusion about which morals and whose eth- ics get to define what a sin stock is, a more nuanced approach
38 | portfolio institutional March 2020 | issue 91
to the investment in controversial stocks has emerged. Rather than blanket bans on sectors and stocks, positive engagement with companies is encouraged and the power of persuasion is deployed. Wolfgang Kuhn, director of investor engagement at ShareAc- tion, a charity that promotes responsible investment, says that every investment will, to a greater or lesser extent, have impacts or negative externalities. “There’s no good or bad, it’s about more or less negative impacts,” he adds. “In a way you could say every investment is a sin stock because it will have some negative impact.” Oil and the multiple uses to which it can be put is a case in point. While from a global warming perspective, it would be desirable to reduce fuel emissions, oil isn’t just used for fuel but is part of manufacturing plastics, including devices such as heart valves and artificial limbs. Mark Hedges, chief investment officer at Nationwide Pension Fund, says blanket bans on investing in oil and gas are the wrong response. “It’s a complex question and we clearly need to encourage a
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