Catalog of development-related criteria for financial investments

Making investment decisions in accordance with social, ecological, and development criteria can contribute significantly to the shaping of a sustainable global economy.

In cooperation with SÜDWIND-Institut für Ökonomie und Ökumene, Brot für die Welt has therefore developed criteria for ethical investing that are based on the principles of justice, peace, and the integrity of creation. FairWorldFonds has structured its investment portfolio based on these criteria.

imug Beratungsgesellschaft für sozial-ökologische Innovationen mbH, an independent organization specializing in sustainability, makes the initial selection of potential investments based on the agreed criteria.

Basic considerations

To strengthen the role of development issues and socially responsible conduct in capital markets, Brot für die Welt and SÜDWIND-Institut für Ökonomie und Ökumene have developed a set of criteria that follow and consistently reflect the three principles of the JPIC process agreed upon by the Vancouver assembly of the World Council of Churches in 1983:

Justice, peace and the integrity of creation.

FairWorldFonds follows these criteria in its investment policy.

The exclusion criteria include but are not limited to pornography, child labor, systematic corruption, and the production and sale of genetically modified seeds. Among other things, strict negative criteria ensure that countries which systematically violate human rights and companies that manufacture arms or that systematically violate the core labor standards of the International Labor Organization (ILO) are excluded from the investment portfolio.

There is also a code of conduct for capital market investments: the fund is prohibited from engaging in foreign exchange speculation, using derivatives for the purpose of speculation, and investing in companies that locate their headquarters in tax havens or "shadow" financial centers for tax reasons.

Inclusion criteria ensure that the FairWorldFonds portfolio includes only those companies or countries that take successful action in support of sustainable development, respect for human rights, and the protection of vital natural resources.

Before it makes any demands on the companies it invests in, FairWorldFonds, whose investment portfolio is based on this catalog of criteria, first imposes restrictions on its own conduct in financial markets. It does this in recognition of the fact that certain behaviors on the part of players in financial markets can, in and of themselves, lead to a destabilization of these markets and, as a result, to a destabilization of national economies, especially in developing and newly industrialized countries.

The fund is managed in accordance with the following rules:

  • Fund management does not speculate in foreign currencies.
  • Fund management does not invest in stocks or businesses that establish companies in tax havens or move their headquarters there for tax reasons.
  • Fund management aims at making long-term investments.
  • Fund management invests in derivative financial instruments only in order to hedge against loss.

FairWorldFonds invests at least 70 percent of its assets in fixed-interest securities and at most 30 percent in stocks and microfinance funds. The share of microfinance may not exceed 10 percent and is currently below that limit due to regulatory issues.

This mix means that not only publicly traded companies, but also countries and large-scale, loan-issuing organizations must be assessed in accordance with general ethical criteria as well as specific development criteria. Different criteria catalogs have therefore been created, each tailored to the respective responsibilities of countries, companies, and development banks. In keeping with the interest of FairWorldFonds in promoting development, the large-scale organizations that are assessed are first and foremost development banks.

Exemplary Criteria

The exclusion criteria for companies prohibit the purchase of securities from corporations that systematically violate the ILO core labor standards or minimum wage laws, or have key suppliers that violate these norms.

Arms manufacturers and companies that support repressive regimes and civil wars are also excluded. The fund does not invest in nuclear power producers or producers of the 21 most dangerous chemicals. The use of GM technology in agriculture is ruled out, as is the use of animal experiments that are not required by law.

Care is also taken to ensure that no company is included in the portfolio that harms sensitive nature reserves or that has a monopolistic (market-dominating) position in developing or newly industrialized countries.

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FairWorldFonds invests only in companies that perform well in the areas of "development support" or "developmentally sound products" or in at least two of the following seven criteria sets.

  • Human rights
  • Sustainable company management
  • Development criteria
  • Socially responsible and developmentally sound products
  • Ecologically sound products
  • Environmental management
  • Commitment to the environment in developing and newly industrialized countries
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The exclusion criteria for countries prohibit investment in countries that systematically violate human rights and thereby disregard basic political, civil, economic, social or cultural rights. Also, the fund does not invest in countries in which there is an extremely unfair distribution of opportunity due to high levels of corruption and income disparity.

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Government bonds can only be included in the fund if they are issued by countries that perform positively in at least two of the following six categories:

  • Human rights
  • Development activities
  • Good governance
  • Commitment to peace
  • Protecting the integrity of creation within the country
  • Protecting the integrity of creation internationally
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Development banks are banks that finance important development projects, such as projects that improve the infrastructure or advance the economies of developing countries. Development banks are assessed on the basis of criteria developed for publicly traded companies as well as additional criteria, including the following:

The exclusion criteria for development banks prohibit investment in banks that support projects which systematically violate human rights or degrade the environment.

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It also views positively the granting of reduced-interest loans to small and medium-size businesses or to projects which due to their social or environmental impact are deemed particularly worthy of support.

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