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Rise of the Conscious Consumer

August 8, 2016

 

The 2013 Rana Plaza building collapse in Bangladesh put a spotlight on corporate social responsibility. The death of 1,127 factory workers raised awareness of the fact that improving factory safety in Bangladesh could cost as little as 10 cents per garment. While the various corporate giants argue over who is going to carry that extra cost, it appears it is the average consumer who is raising their hand.

 

 

In a recent report from Nielsen, a global performance management company, it was found that sixty-six percent of global consumers say they are willing to pay more for ‘sustainable’ goods – a trend that appears to be increasing – up from 55% in 2014 (and 50% in 2013). The report further showed that In the year 2014-2015, sales of consumer goods from brands with a demonstrated commitment to sustainability and social responsibility have grown more than 4% globally, while those without grew less than 1%.

 

 

This represents a growing global trend where more consumers are looking for products and services that are simultaneously good for them and good for society.

 

 

In a world effectively run by corporations, money tends to talk louder than words. And as consumers, more people are recognising they actually have a unique power. A power of how and where you spend your money. Collectively, this certainly makes a difference. For example, in response to a petition signed by more than 100,000 consumers, one of the world’s biggest chocolate makers, Mondelez International, announced it would reexamine worker policies throughout its supply chain to ensure women get paid equally to men.

 

 

In the superannuation and managed fund environment, consumer power can be leveraged even further. A managed fund typically pools the money of thousands of investors together into a fund which is then invested into specific companies. An ethical fund goes through a process of negative and positive screening in order to select companies that might align with the charter of the fund. As an investor in these managed funds one effectively owns equities or shares of different companies and these shares can give a vote to the shareholder. Good ethical fund managers will use this vote to help influence improvements in corporate behaviour. So alongside simply choosing to buy or not to buy a company’s products, one can also influence companies towards better social and environmental behaviour through their investment choices.

 

 

According to a report from the Responsible Investment Association of Australasia (RIAA), the demand for investment in ethical companies is also growing. Their report showed that Funds under Management doubled in two years, from $15.2 billion to $31.6 billion in December 2014. ABC journalist, Thuy Ong, recently reported that Dr Woods, AMP capital head of environmental, social and governance investment research, said “one reason for growing popularity of AMP’s ESG fund was a rise in social activism… to influence change in corporate behaviour. “Being an ethical fund,” he said, “is not just about excluding companies, it’s about leveraging the relationship you have with the companies…to improve their performance on a particular issue.”

 

 

One famous example of shareholders influencing change is when UK group, Friends of the Earth used a shareholder resolution as part of its campaign against Balfour Beatty’s plans to build a controversial dam in Turkey. Protest groups warned that the dam would make 78,000 local people homeless and drown dozens of towns and villages, including the world historic site of Hasankeyf. FoE bought £30,000 worth of shares in order to submit a resolution on the dam contract at Balfour Beatty’s AGM. Some months later, the company pulled out of the project, announcing that ‘after a thorough evaluation of the commercial, environmental and social issues, it is not in the best interests of our stakeholders to pursue the project further’.

 

 

These examples confirm that the conscious consumer is having a massive impact in the world with how and where they choose to spend and invest their money. Through their conscious choices they are shaping the future of our world for the better. The bonus is that not only is it good for society and the environment, but it can actually be financially rewarding as well. The RIAA benchmark report for 2015 indicated that Core Responsible Investment Australian Equities funds strongly outperformed the ASX300 and the average Australian Large Caps in all time periods. The basic theory is that when companies that do less harm, look after their staff and are well managed they provide better returns. It seems there is no longer any excuse to remain unconscious with regards to where you spend and invest your money.

 

As Mahatma Ghandi once said, the future depends on what you do today.

 

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