Fair trade has not only helped thousands of families in Africa, Asia, and Latin America to live in dignity – it has also developed into an economic model for success. Ethical principles such as those in fair trade should be applied to capital markets, too, because in times of crisis it is the poorest of the poor that are hit the hardest. It is in this context that German development and relief agency Brot für die Welt, the FairWorldFonds partner on development issues, helped create criteria that assess financial investments in terms of their development impact as well as their social and ecological effects. These criteria provide investors with a way to make sustainable investments and contribute to a better world.
Fair trade and fair investment share the same goal: a global economy focused on the common good.
Seeing the need to apply this principle to financial investments, GLS Bank, Bank für Kirche und Diakonie, and Union Investment, which has many years of experience in the field of sustainable investment, decided to launch the fund FairWorldFonds.
FairWorldFonds is helping to move the sustainable development of financial markets forward – so that economic activities serve life.
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 | rating, one of the leading sustainability rating agencies in Germany, assesses the sustainability of potential investments based on the agreed criteria.
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.
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.
FairWorldFonds invests only in companies that perform well in the areas of " engagement in developing and emerging countries" or " socially responsible products" or in at least two of the following six criteria sets.
- Human rights
- Responsible corporate conduct
- Engagement in developing and emerging countries
- Socially responsible products
- Ecologically responsible products
- Environmental management
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.
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
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.
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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In Germany and Austria imug | rating exclusively represents the sustainability rating agency Vigeo Eiris, one of the major global service providers for sustainability research. Vigeo Eiris is the leading European sustainability rating agency with more than 240 employees in ten countries, six international partners and more than 300 sustainable investors worldwide providing a wide range of sustainability ratings and thematic research services.
In collaboration with Vigeo Eiris, imug | rating provides access to comprehensive sustainability research services for equities and bonds including databases, sector analyses, portfolio analyses and structured products. Our solutions range from ESG ratings, sustainable investment filters, risk analyses, climate data and SDG assessments for thousands of issuers as well as over 180 sovereign states. All data is available in a modern and user-friendly database. Over 330 indicators provide a comprehensive and differentiated view of all relevant ESG aspects, based on a sophisticated and up-to-date methodology.
The sustainability rating on behalf of the FairWorldFonds is independently conducted by imug. Hence, it may be that you will receive a survey from Vigeo Eiris, as well as an additional separate survey from imug | rating on behalf of the FairWorldFonds.
The FairWorldFonds has been launched in 2010 and is targeted at private and institutional investors. The fund is focusing on “development, international justice and sustainability” and applies a very strict set of criteria that is guided by a development perspective for all the covered asset classes. By defining such a set of criteria, development criteria have been introduced into ethical investment.
For equity investments the fund initiators are seeking to identify companies that actively take up their responsibility in developing and newly industrialized markets and whose activities are better compatible with the goal of development, justice and sustainability worldwide than those of many other actors.
Therefore, imug researches companies that either operate in one or more developing or newly industrialized countries or sell products that are (or might be) capable of stimulating development and poverty reduction. Thus, imug investigates the direct and indirect effects of company activities in developing and newly industrialized countries.
imug | rating is continuously rating new companies that might be suitable titles for investment by the FairWorldFonds. Only companies that fulfill all fund criteria are considered as suitable titles. While imug is narrowing down the choice of titles, the Ethics Committee and the fund manager decide in which of these preselected titles the fund invests. The Ethics Committee is composed of renowned development and financial experts.
Once a company is considered as suitable title, an update of the rating is conducted every three years. Furthermore imug conducts a daily monitoring of all invested titles in order to be aware of actual controversial incidents. In case of a major incident which breaches the fund criteria a divest-decision can be taken by the funds Ethics Committee at any time of the year.
We generally accept sections in the survey or otherwise submitted information that is clearly marked as “confidential”. Moreover, we do not transmit any internal documents such as employee handbooks or management manuals to third parties. We evaluate these documents and provide an overall assessment. Afterwards all documents are archived and only accessible for our analysts. Any modifications to the above can be discussed on an individual basis and we are happy to provide you with a standardized confidentiality agreement upon request.
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We conduct our ratings on the basis of various sources (annual reports, sustainability reports, company website, expert opinions, media and internet research, survey etc.). Thus, the survey offers you the possibility to provide more detailed information on key issues. This can lead to a better rating based on better insight into company data. If the survey is not completed, we will only use publicly available information.