According to a report in the business magazine Bloomberg, ethical evaluation criteria for investment funds are poorly chosen. Companies from the erotic and sex industry are much more often rejected than companies that are active in the weapon industry or pose a threat to the global climate.
Not only banks and payment processors avoid the adult industry like the devil avoids holy water. Access to capital is also made more difficult for adult entertainment companies in other areas. The increasingly popular ESG funds (Environmental, Social and Corporate Governance), which want to enable so-called ethical investments, disadvantage companies in the adult entertainment industry to a far greater extent than military companies and environmentally dubious industries.
Is negative screening unsuitable for the selection of ethical investments?
Bloomberg reports that funds that use valuations for an ethical investment portfolio avoid industries that can be classified as controversial by means of so-called »negative screening«. As expected, these include companies from the defense, energy and gambling industries. What they all have in common, however, is that they nevertheless receive far more investments than companies from the adult industry.
Bloomberg writes: »Almost 40% of global credit funds would exclude adult entertainment when using negative screening, according to a note by UBS Group AG analysts led by Stephen Caprio. Meanwhile, less than 30% of funds would avoid fossil fuel or gambling firms when applying the same method.«
Ethical investing: Beautiful illusion or reality?
Negative screening, however, is the most commonly used method to assess how ethical investments could be made. This raises questions: Is the industry-wide toolkit for ESG investments even effective? Can investors in the ESG sector really sleep better or is everything just failing cosmetics? Because it is not only the uneven evaluation of the sectors and the disadvantage of adult entertainment companies that catches the eye. The remarkably low figure for the exclusion of companies in the defense and energy business is also quite conspicuous. Isn’t it precisely the point to avoid such industries completely if you want to invest ethically correct?
Policy more important than impacts
According to UBS experts, far more funds use »negative screening« instead of selecting bonds for their ESG portfolio on the basis of performance statistics. It is not only UBS that is reaching worrying conclusions. Citi Bank’s investment experts also have their doubts. ESG scoring systems for the selection of investment opportunities essentially favor companies with clear guidelines, even companies from the tobacco business or the oil and gas sector can be declared ESG-compatible in this way.