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ManojePrutthisathaporn4904640481
EstablishingBuddhistInvestmentCriteria:TheanalysisthroughProductDifferentiationTheoryandtheCaseStudyofThailandSET50Index
1.Introduction1.1Background
InMiltonFriedman'sclassicarticle,TheSocialResponsibilityofBusinessistoIncreaseitsProfits,hewrotein1970inhisstockholdertheoryofcorporatemoralresponsibilitythatacorporation'sonlymoralresponsibilitywastopromotethefinancialwell-beingofitsstockholders(McAleer,2003).Itisevidentthatbusinessworld,particularlytheUnitedStates,iscurrentlymovingtowardhistheorysinceavastlyvarietyofcorporationshasincreasinglyadoptedhisprinciple.Numerouscompaniesarecreatinganenergy-efficientproduct,racingtobegreenerthanoneanother,attemptingtobeperceivedasagood,reliablefirm,andimprovingenvironmentalandworkingconditions.Forinstance,mostplayersinautomobileindustryhavesubstantiallyexpandedtheproductionofhybridcar,massivefarmingfirmshaveadoptedanorganicfarming,andconsumergoods’manufacturersconsiderablyhavelabelledtheirproductsnotingonenergyusage.Thisstrengthensthebeliefthatprofitsandprinciplesarenotmutuallyexclusiveandinvestmentindustryisnoexception.Ethicalinvestmentwasbornoutofadreamtobeanalternativeinvestmentforpeoplewhodesiretoinvestinwhattheybelieve.Theypayattentionnotonlytothenumberofriskandreturn,butalsotowheretheirmoneygoes.Ethicalinvestmentisdefinedasputtingyourmoneywhereyourmoralsare,orinvestingaccordingtoyourbeliefs(Fehrenbacher,2001).Torespondtoavarietyofbeliefaroundtheworld,varioustypesofethicalinvestmentshavebeeninitiated,whichinfactfallintothethreeclassifications–religiousinvestment,greeninvestment,andsociallyresponsibleinvestment.Firstly,fundswithreligiousinvestmentconsistofCatholicfund,Islamicfund,andJewishfund.Themainfocusofcatholicfundisonlifeethic,whichrulesoutinvestmentsincompaniesparticipatinginabortion.CompanieswhoseproductsorservicesviolatetheCatholicChurch’steachingsonaconsistentlifeethic,includingcontraceptives,embryonicstemcellresearch,andabortion-relatedproductsandservicesarealsoexcluded.ThemostfamouscatholicfundisChristianBrothersInvestmentServices,Inc.(CBIS)whichistheleaderinCatholicsociallyresponsibleinvesting.CBISpossessapproximately$3billioninassetsundermanagementforover1,000Catholicinstitutionsworldwide,includingdioceses,religiousinstitutes,educationalinstitutionsandhealthcareorganizations.Next,
IslamicfundsexcludeengagementinwhatIslamiclawsprohibit,includingalcohol-relatedactivities,conventionalbankingservices,entertainmentandgambling,lifeinsurance,andpork-relatedproducts.Itsmaindifferencefromotherethicalfundsistheprohibitiononinterest-basedtransactionsandfinance.Asaconsequence,allowanceoflimiteddebthasprotectedIslamiccommunityfrominvestmentlossesinthepast,particularlyduringcrisisperiod.
ThelastreligiousfundisJewishfund.UnderJewishteaching,investorsshouldfeelresponsiblefortheharmdonetoothersbythecompanieswhosestocktheyown.Theprohibitionincorporatesnoprofitfromforbiddenactivities,especiallythosegeneratingpollutionorexploitinglaborforce,andnoownershipofassetsthatcauseothersharm.ThemanagerofJewishfundislikelytoinvolvetheprocessofpositiveengagementwithcorporationsinordertoraisetheirgeneralethicalstandards.
 
ManojePrutthisathaporn4904640481Thesecondclassificationofethicalinvestmentisgreeninvestment.Themajorcharacteristicofgreeninvestmentisapursuitinanenvironmentally-orientedinvestmentpolicy.Fundswithgreeninvestmentusuallyusecompany’simpactontheenvironmentoritsefforttominimizethisastheirprincipalcriteria.DatafromFintactica,aUSindependentresearchandanalysis,disclosedthatgreenfundsavailableintheUSin2004heldalotofmainstreambusinesseswithagoodrecordinenvironmentalactivitiesintheirportfolio,includingMicrosoft,AIF,CocaCola,andWellsFargo.Lastly,sociallyresponsibleinvestment(SRI)isinvestmentwhichallowsinvestorstotakeintoaccountwiderconcerns,suchassocialjustice,economicdevelopment,peaceorahealthyenvironment,aswellasconventionalfinancialconsiderations,accordingtoTheAssociationforSustainable&ResponsibleInvestmentinAsia.Itholdsnegativescreeningtoexcludefirmsviolatingitsprincipleandactivelyseeksoutfirmswhichmakeapositivecontributiontosociety.MostSRIfundsareconstructedbyusingenvironmental,socialandgovernance(ESG)factorsasselectioncriteria,includingcleanandrenewableenergy,environmentalfriendlymanagement,workplacepracticesandlaborstandards,ethicalpolicies,andcorporategovernanceandtransparency.SRIisanincreasinglypopularfieldofinvestment,particularlyinEuropeandNorthAmerica.CelentFinancialConsultancyreportedin2007thatthemarketofSRIgrewfrom1trillioneuroin2005to1.6trillioneuroin2007distributedacross451SRIfundsinEurope.ThetrendispredictedtobecontinuousupwardinEuropeandthesituationissimilarintheUnitedStates.In2007,SRIfundsaccountedfor11percentof$25.1trillionintotalassetsundermanagementinUSmutualfundindustryaccordingtoReportonSociallyResponsibleInvestingTrendspublishedbySocialInvestmentForum.Thereportalsorevealedthegrowthrateof18percentintotalassetsundermanagementusingsociallyresponsibleinvestingstrategies,increasingfrom$2.29trillionin2005to$2.71trillion.Ethicalinvestmentsalsovaryinthelevelsofcommitmentbutsomeethicalfundsmightcombinedifferentmethods.Thesimplestwayisscreening-theinclusionorexclusionofstocksandsharesbasedonethicalground–whichcanbeeithernegativeorpositive.Withnegativescreening,companiesareexcludedfromtheinvestmentbecauseoftheirinvolvementincertainactivitieswhicharejudgedsuchnegativityasheavypolluters,armscompanies,andanimaltesters.Incontrast,positivescreeninghelpsselectcompanieswithsuperiorsocialorenvironmentalperformance.Thesecondlevelisengagement.AccordingtoEthicalinvestmentresearchservices,withengagement,fundmanagersactivelyencouragecompaniestoadoptsocialandenvironmentalbestpractices.Thiscaninvolvemeetingswithseniormanagementandvotingatrelevantannualgeneralmeetings.Manyofthelargerethicalpensionfundstendtoconcentratesolelyonengagement.Thelastleveliscalledcommunityinvesting,asknownassocialventurecapital.Itistheinvestmentofmoneyintocommunitydevelopmentsthatcontributetothegrowthandwellbeingofparticularcommunities(Carla,2007).Forinstance,theGrameenBankofBangladeshbyNov2000hadalreadylent$3.2billiontoovertwomillionpeople.Amongthem,90percentwerewomenwhowereclassifiedasverypoorwitharepaymentrateof98percent.Table1SRI-relatedfundsinAsiainMay2008PrivateEquitySRIPensionFaith-basedTotal
 
ManojePrutthisathaporn4904640481CountryPublicFundsMandatesChina20002HongKong1900120Japan5910060Korea3726045Taiwan30003Singapore3101014Malaysia2008183Indonesia01012India11013Thailand20013Source:AssociationforSustainable&ResponsibleInvestmentinAsia(ASrIA)SituationofethicalinvestmentfundsinAsiaissummarizedinthetable1.TheleadersofSRI-relatedfundsinAsiaareMalaysia,Japan,andKorea,allofwhicharedevelopedcountries,whiledevelopingcountrieslikeChina,Thailand,India,andIndonesiahaveafewnumbersofethicalfunds.ThethreeThaiethicalfundsshowninthetable1compriseMFCEnvironmentallyandSociallyResponsibleInvestmentFund,MFCInvestGlobalAgribusinessFund,andMFCIslamicFund.Inotherwords,twoSRIfundsandonereligiousfundhavebeenlaunchedinThailand.ThefirstSRIfundinThailand,MFCEnvironmentallyandSociallyResponsibleInvestmentFund,aimstogeneratesustainablereturnsaswellastosupportcompaniesthatgaveaprioritytosocialinvestment.FirmsarescreenedontheirpoliciestoprotecttheenvironmentandpromotesocialawarenessandathirdpartystandardbasedonISO14000complianceaswellasthecorporategovernancestandardssetbytheStockExchangeofThailandareapplied.Secondly,MFCInvestGlobalAgribusinessFundisthefirstfundfocusingonAgriculturalBusinessinThailand.ThefundinvestsonlyininvestmentunitsofDWSInvestGlobalAgribusinessFundinvestinginglobalagriculturalbusinessmanagedbyDeutscheAssetManagement.Lastly,theinvestmentofMFCIslamicFundisdeterminedReligionsAdvisoryBoard,asknownasShariahCommittee,consistedofdistinguishedmembersoftheThaiMuslimcommunitywhoareknowledgeableaboutIslamiclawandprinciples.Thefundnotonlyexcludescompaniesthatdonotengageinprohibitedbusinesses,butalsoestablishesfinancialcriteriaforinvesteecompanies,specifyingthemaximumallowanceoftheratiooftotaldebt,ofthesumofinterestsecurities,andofaccountreceivable.Table2TotalvalueofmutualfundindustryinThailand,from2002to2008Item/Year2008200720062005200420032002AssetManagementCompany21211818171414TotalAssets1,105910808683526429346TotalAssetValue(BillionBaht)1,5331,6101,222962681720435Source:AssociationofInvestmentManagementCompanies(AIMC)Thetable2demonstratesthewholepictureofmutualfundindustry.ThetotalassetvaluemanagedbymutualfundsinThailandincreasedbymorethanthreetimesfrom2002to2008.ThisdataillustratetheattractivenessofmutualfundstoThaipeople,resultingintheircontinuousupwardrisingtrend.
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