Two Swedish banks and Africa Oil Corp

Is "ethical investing" possible?

4:00 min

Despite its rise in popularity in recent years, some wonder if ethical investing is possible.

One popular company with investors that has kicked up a recent controversy is Africa Oil Corp, which is part of the Swedish Lundin Group and prospects for oil and gas in the conflict-ridden Ogaden region of Ethiopia.

This is where two Swedish journalists were arrested in July as they were attempting to investigate oil activities in the region. They were later sentenced to an 11-year prison term for supporting terrorism.

The Swedish banks Handelsbanken and Swedbank both have mutual funds with holdings in Africa Oil Corp. Like many companies, the two banks also say they support the UN Global Compact's 10 principles for Corporate Social Responsibility (CSR). These principles cover human rights, labour, the environment, and anti-corruption.

“Ethical guidelines have done a lot of good over the years, but there might be a conflict in being an investor because the main objective is to create a financial return. That’s why it is a difficult and tricky question,” says Lars Hansell, program director at Sweden's Sustainable Developments Research Platform.

To help them meet the challenge, companies are increasingly turning to ethical investment consultants to screen their investments.

That is what Sweden-based Ethix SRI Advisors does. “We help our clients formulate a policy for what they want to do and can do,” says Ulrika Hasselgren, CEO at Ethix. “We help them implement the policy by monitoring their portfolio in companies and help them make decisions in line with their policy.”

But investing in the developing world is even more difficult, says Lars Hansell. “The information from emerging markets and developing economies is not good. It’s a challenge to find out what’s going on, and you’re taking larger risks,” he says.

But, he adds, those risks mean higher returns, which is why the professional investors want to invest in these areas.

In the case of Africa Oil Corp, Handelsbanken says it found no evidence of violations. “If they do have blood on their hands then that changes the story for us. Then we’ll look at it from a whole different angle,” says Peter Schols, head of Investment Management Handelsbanken.

Ethix says it has been monitoring Africa Oil Corp and started a dialogue with the company this past September. Hasselgren says your ability to judge whether or not violations have taken place becomes even more challenging when a company operates in a conflict-ridden zone.

“Given that we know there is an extraordinary risk of complicity and violations, given the context, we’ve actively sought information from the company about how they manage their human rights risks in this region,” says Hasselgren. “We have not found any specific incidents of involvement by Africa Oil Corp.”

In light of Radio Sweden's report, Swedbank says they have started a dialogue with Africa Oil Corp about their use of security forces in the Ogaden. They said the discussions will last for several months before any decisions are made.