Is conscious capital a threat to mining giants?

The concept of conscious capitalism is not a new one, but it is certainly coming to the fore. Everyone has their own set of ethical and moral values (we hope) and conscious capitalism merely holds that investors should not put capital into activities that they personally see as unjustified due to the negative present and future impacts on humanity. Many conscious capitalists choose to limit their exposure to fossil fuel companies, while others simply avoid the most harmful fossil fuel companies.

The Minerals Council of Australia is doing more than anyone to encourage conscientious investors to get their portfolios in shape. That’s because the organisation – funded by resource giants such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) is regularly attacking divestment campaigns. For conscious capitalists such as Australian Ethical Investments Limited (ASX: AEF) this amounts to a huge amount of free advertising.

The AFR has unquestioningly quoted the statement by IPA author Sinclair Davidson that: “To the extent that stigmatisation deliberately causes investors to make valuation errors and consequently rebalance their portfolios away from fossil fuel stocks, a violation of the ­Corporations Act has occurred.”

This is completely wrong. We are, after all, in a free country and a more accurate interpretation of the law is that an opinion that is honestly held and that has a reasonable basis is not a breach of the law.

But let’s pretend Davidson’s claim is correct and, as Charlie Munger says “invert, always invert.” If that were the case, investors who use their dough investing in unprofitable coal-miners such as Whitehaven Coal Limited (ASX: WHC) would be able to argue that those who deny climate change (and deliberately cause overvaluation of coal miners) are in breach of the Corporations Act! Better be careful, Mr Davidson!

Back to reality and one more realistic argument is that superannuation trustees are in breach of their duties under the Superannuation Industry (Supervision) Act 1993 if they do not, at least consider risks posed by climate change. Put simply, it is not acceptable for fund managers to decide climate change is a conspiracy and invest according to an alternate reality where the world keeps using more and more coal for the next 50 years, because that isn’t in the best interests of members.

Investing too heavily in coal mining companies is a big risk because, as Davidson himself argues, the divestment movement could result “in permanent devaluation of stock prices.” The divestment movement is here, it is happening and as a result, mining companies are funding attacks on ethical investors. You can either divest yourself or face the risk of “permanent devaluation”.

What kind of world do you want for your great-grandchildren, anyway?

It's not difficult to find a socially responsible and growing company with bright prospects and a solid dividend.

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Motley Fool contributor Claude Walker (@claudedwalker) owns shares in Australian Ethical Investments.

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