"At New Rivers, we don't just avoid unethical industries; we transform them. Our direct investment approach turns traditional ethics on its head, proving that even the most challenging sectors can be reshaped for the greater good."
In case you missed it, your ethical superannuation fund may not be as ethical as you thought.
I was shocked and disappointed (a little at myself) when I read this article by the ABC and realised that my super fund was one of the worst offenders. You may be like me wondering “Now what?”
As investors, we understand the importance of investing and making sure that we have funds available so we can enjoy our later years. As ethical investors, we want to achieve this goal in a way which benefits the world around us, or at the very least does not exacerbate or encourage the problems our world is facing. Where do we go from here, if ethical super funds are not the answer we thought they were?
One solution is direct ethical investing. To explain this concept, we thought it helpful to repost a longer version of the blog we released a few weeks ago. Diversifying investments to include direct ethical investing may be the only way we can ensure that at least some of our ethical investing is, well “ethical”.
Direct Ethical Investing combines the altruistic impact of charity with the practical benefits of financial returns.
If you are reading this article, you are probably already convinced about the importance of ethical investing. You may even have changed super funds to a fund which says that your contributions are only invested in funds, businesses or industries which are ethical or at least those which are not non-ethical.
The challenge with broad-scale ethical investments is the difficulty tracking exactly into which businesses and industries you are actually investing. There is no universal definition of an ethical business or industry although some accepted standards are emerging such like “FairTrade”, “Cradle to Cradle”, and “B Corporation”. Additionally, every ethical investor (like you) has a slightly different view about what ethical investing is and what it is not. For some, ethical investing is mostly about investing in environmentally sustainable businesses and industries. For others, equality, human rights and labour conditions are major concerns. Still others, use an “elimination style” approach which allows for any investments which do not include certain industries. For example, some investors are looking to divest from: petroleum, mining, tobacco, gambling and alcohol related industries.
The challenge with an elimination approach is determining how disconnected a business or investment fund needs to be from undesirable industries for the investment to be considered ethical. This challenge becomes even more complex when investing in broad-scale investments like superannuation funds. For example, you may invest in funds which do not directly invest in mining companies or casinos. However, those same funds may invest in businesses which manufacture equipment and materials which are used by mining companies. Additionally, those funds may also invest in businesses which provide hospitality equipment, supplies and labour to casinos. Again, you are left with a decision on whether such funds are “ethical” or “ethical-lite”.
New Rivers has taken an alternative approach to ethical investing which is direct and simple. Counter-intuitively, we do not automatically discount investing in industries which are unethical by most standards. Instead, New Rivers actively seeks out industries which are clearly unethical due to their use of slaves and poor environmental outcome. We then implement the following process to disrupt these industries with the aim of transforming them into ethical industries:
1. Find local business partners with connections to these industries. These partners can be:
Businesses who rely on the products produced by these industries. Many companies are trying to do the “right thing” but they are struggling to find ways to obtain products, material and equipment from ethical sources. In these situations, New Rivers looks to partner with businesses to create a profitable and sustainable way to provide what they need in an ethical way. For example, New Rivers Pakistan is working with an engineering company in Lahore to provide them with a consistent supply of ethically-produced bricks at the market rate.
Not-for-profit organisations and NGO’s who are working to reduce the harm caused by unethical businesses. The National Director for New Rivers Pakistan has, for the past 20 years, worked to provide education and health care to children who work as slaves in brick factories. Our partnership with her and her team has allowed New Rivers to navigate the intricacies of Pakistani banking, government and business regulations required to start up businesses in the Punjab State.
2. Start a local business.
New Rivers adopts a "minimum viable product" approach which can take two forms based on the nature of our local connections.
For a business looking for an ethical supplier, we:
Develop an understanding of the business’ supply needs;
Identify the unethical “elements” in their current sources of supply;
Determine which element or interconnected elements are likely to be the simplest to resolve;
Develop a business model to resolves these elements in a profitable and sustainable way, and then either;
Purchase an existing business within this industry and alter its mode of supply to incorporate these ethical resolutions; or
Start a business which supplies the products needed in an ethical manner; OR
When partnering with a local not-for-profit or NGO, we:
Develop a team local professionals and community leaders who understand and are committed to a long-term vision of transforming an unethical industry;
Establish an initial business which operates within the general sphere of the industry New Rivers is targeting. The first business New Rivers established in the Punjab State was a recycling center which we are currently expanding into a construction material retailer. This business is connected with the broader construction material sector which includes brick manufacturing (the industry we are “targeting”). The purpose of these initial businesses is twofold:
To “learn by doing” in a way that requires a nominal investment; and
To develop a local sustainable income stream which can absorb the costs arising from the challenges which emerge when bringing ethical businesses practices into an unethical industry;
Establish an official local business structure which complies with local regulations and which is consistent with culturally appropriate ways of doing business. This step is critical as it ensures that local, not foreign solutions are used to bring ethical change. In this way, organic change comes from within instead of being imposed by a foreign business; then
Purchase an existing business within this industry and alter its operations so it transitions from an unethical business to an ethical business; or
Start a business within this industry with ethical practices as a model for the rest of the industry.
3. Continue to Expand New Rivers' 'Ethical Footprint' within this industry to bring a long-lasting transition from unethical to ethical.
There are numerous variables which are unique to each industry which need to be identified and address to facilitate this transition.
This process takes time which is why it is better suited to a direct investment model rather than a charity/donation model. Profitable ethical businesses are easily replicated and provide attractive alternatives to unethical practices. Businesses also require less funds in the long-term than charities, NGO’s and not-for-profits. The profits from businesses eliminate the need for on-going funding which is a constant issue for charities, NGO’s and not-for-profits. Of course, there is the added benefit that ethical investors receive revenue which is not available to donors.
Get Involved with New Rivers:
Invest with New Rivers and witness the transformation of industries from unethical to ethical. For businesses seeking sourcing solutions, we're here to help.
Start the conversation by emailing us at info.newrivers@gmail.com
For more details on investing with New Rivers and our returns, click here.
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