Philosophers have debated ethics for thousands of years and come up with more questions than answers. But now a super-smart Swiss asset manager has launched an ethical fund using a quantitative model to determine how naughty or nice companies are. Their efforts may not impress followers of Plato, Kant and Hume but will they persuade socially-concerned investors to part with their cash?
Pictet & Cie's new sustainable development fund launched on August 26 tracks the 100 biggest companies in the Pictet universe and then weights them by ethical standards. Those with links to the arms industry or totalitarian regimes do badly, those which treat their employees well and protect the environment do better. The portfolio is constructed using a model that maximizes a sustainability score relative to the benchmark.
Of course some companies have a natural advantage. Swiss Reinsurance is the nicest of the lot. Management is kind to employees and it doesn't pollute. By contrast chemicals companies fall down the list and the defence sector is banned altogether.
Pictet Sustainable Equities, Switzerland, as the fund is called, should interest delegates at the World Bank annual meetings as the institution has pledged itself to promoting sustainable development. This is defined by the United Nations' Brundtland Commission, as meeting "the needs of the present generation without compromising the ability of future generations to meet their own needs".
But will the fund result in sustainable savings? With European populations ageing and birth rates falling those saving for retirement need the highest possible returns. If they fall short, future generations will find their earnings squeezed by heavy taxes as the state tries to support a huge elderly population. Future generations will no doubt appreciate a clean environment but may have to foot the bill if ethical funds underperform.
"We're aware that some people won't like or understand it," says Raoul-Philippe Bachmann, head of Pictet Fund Management, who confesses that some of the technical details are beyond even his grasp. The fund manager has outsourced the analysis to a London sustainability expert VTZ Delphi.AM