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Saint or sinner?

Whether you shun or love the socially responsible approach, the pressure on companies to go green has implications for all investors, says the Investors Chronicle companies team
Saint or sinner?

It is a sad but incontrovertible truth that when it comes to investing it has usually proved more profitable to be naughty rather than nice. As ethical funds have struggled to convince investors that they can match the performance of their wider benchmarks, the so-called vice industries, especially tobacco and alcohol have seen their share prices thunder ahead. In short, investors have become addicted to the chunky dividends they offer, underpinned by the steady cash flows generated by the recession-proof habits they cater for.

The numbers speak for themselves. The average share price gain among the world's listed tobacco and beverage giants over the past decade stands at an eye-watering 277 per cent and 163 per cent- including dividends the return becomes an even more spectacular 480 per cent and 237 per cent against a FTSE All World return of 122 per cent. Ethical funds can't match that, but they aren't in fact the chronic underperformers that they are often touted as - as Katie Morley explains in the Big Theme.

Perhaps that's why the vast majority of investors still prefer to hold their nose and put financial security above their social conscience. According to research from ethical fund group Ecclesiastical Investment Management, only a third of investors consider themselves to be ethically motivated, a far smaller number than the 60 per cent that make ethical choices when it comes to doing the weekly shop.

The willingness to invest in a socially responsible manner may also suffer due to the fact that there is no clear cut way of evaluating a company's ethical credentials. Benchmark indices like the FTSE4Good series can be somewhat confusing, often containing constituents that many wouldn't consider ethical, such as oil producers or drinks companies. In fact, the only sectors that are actually barred from inclusion are defence, tobacco and nuclear. Weir Group (WEIR) (UK industrial engineering) has long been regarded as a sinner by the green brigade for its involvement in fracking but was one of 30 companies added to the FTSE4Good index series on 20 September following the last semi-annual review.

Clearly, Weir's inclusion is in on the back of strict internal procedures rather than its activities. It even operates an ethics hotline that employees can use to raise concerns about unethical behaviour. Again, this opens up the debate about what is an ethical investment and what’s not. Even the Church of England (CofE) falls foul of this ethical dilemma - the investment guidelines for its £5.2bn of funds under management state that a company can derive no more than 5 per cent of its turnover from alcohol, even though when it comes to taking drink the Bible is unequivocal. The book of Proverbs warns readers: "Wine is a mocker, strong drink a brawler, and whoever is led astray by it is not wise."

Abiding by the conventions set out by the CofE would rule out pub groups and distillers from its portfolios, but it would still allow supermarkets and wholesalers to be held in its portfolios. A major company such as Sainsbury's (SBRY) will make hundreds of millions from alcohol and tobacco sales annually. However, in the context of its overall revenues the impact on profits is tiny. Can we then regard Sainsbury's as an unethical investment if it benefits from selling fags and beer? Is sipping a fine malt whisky next to the fire really the end of civilisation as we know it?

 

 

One problematic question with ethical investing, then, is how to define consistently the difference between companies that benefit in some way from selling 'unethical' products, and those that derive only an indirect benefit but are still regarded as 'normal' companies. Furthermore, if we delve into the closets of many companies beyond the polluters and purveyors of sin, we will discover many unethical skeletons. What could be unethical about mobile telecommunications, for example? How about large-scale tax avoidance and the tantalum required for mobile phone electronics, a conflict mineral mined in the war-torn Congo. Supermarkets, too, are a classic example of this moral dilemma - the convenience they've brought has proved transformational to people's lives and diets, but an army of redundant small shopkeepers and squeezed farmers might disagree that their rise has been a good thing. For that reason Tesco (TSCO), as the UK's market leader, is a great example of a stock which bitterly splits opinion.

But as we will outline throughout the next few pages, investors should also be mindful of the potential impact, good or bad, on their portfolios, regardless of their ethical standpoint. Increasingly, ethically-minded customers will also bring pressure to bear, and in some cases, this need for change will put pressure on profitability - look no further than supermarkets as a case in point. Regulation will add further cost, too - organisations that are UK incorporated and listed on the main market of the London Stock Exchange will be required to report on their greenhouse gas emissions performance, for example.

But for others it represents a genuine business opportunity, especially those who are able to support others in achieving their own social aims - more fuel-efficient aircraft components, for example, can help an airline industry constantly battling rising fuel costs. Ian Simm, chief executive at Impax Asset Management, puts it another way, arguing that they should see environmental investment as a hedge against the exposure they have to the rising risks of climate change and resource scarcity. It's an angle that makes sense.

So, whether you're of an ethical persuasion and want to keep your portfolio squeaky clean or just want to make sure you’re not caught out by the rising tide of social responsibility, this guide should help.

 

Go on, be a devil

The arguments over ethical versus non-ethical investing have raged for at least 20 years. But, however virtuous it feels to invest in artisan alpaca mills in Peru, or wind turbines in the middle of rural Gloucestershire, there is a very simple fact to contend with: over the time periods of at least 10 years, ethical investments have always tended to underperform. However, this might not be for the reasons you would expect.

The initial impression that ethical investments underperform is borne out by data gathered by Moneyfacts, which shows a mixed 10-year record for ethical investments versus non-ethical, or traditional - if you prefer - investments. While it is true that ethical funds have made gains of 24 per cent over the past year, compared with 18 per cent growth for the average non-ethical fund, over the long-term this advantage evaporates. For example, over a 10-year period, ethical funds grew by 56 per cent, which is less than half of the 128 per cent growth of the mainstream sector, according to Moneyfacts research.

 

 

What the literature on the subject points to is that ethical investments are not really for investors who care about the relative merits of windpower over oil, but rather are content to pursue a strategy that involves less market risk over the long term. There isn't really a single reason why ethical investments should display this characteristic, except that the data shows that the sector tends to have an average beta value well below 1.00. In other words, it does not move with the rest of the market.

This could be down to the relative stickiness of holdings within the sector - renewable energy companies are often dominated by founders, for example - but it does give investors a degree of protection against the ebb and flow of market sentiment. The price for that in return is that even bog-standard market trackers will outperform your carefully chosen portfolio of Fairtrade Coffee companies unless the beta risk is offset by other means.

In practice, that means holding companies or funds in your portfolio that may offend your moral outlook. Even the CofE was caught out recently by its own pension fund managers after it emerged that it was a significant investor in the pay-day loan company Wonga - an organisation that had recently been criticised by the Archbishop of Canterbury. In the end, investors have to keep their minds open to all possibilities if the price is right. To those who wish to be virtuous: good luck. The rest of us have get by on avoiding being poor. Sometimes it is worth acknowledging that the devil has the best portfolio.

 

 

Vice no longer quite so nice

Whichever way you look at it, big tobacco is a definite no-no for any ethical investor, no matter how ‘light green’ – because however much corporate social responsibility (CSR) British American Tobacco (BATS) and Imperial Tobacco (IMT) carry out, it will never outweigh the effects of selling a product that is highly addictive and damaging to one's health.

These characteristics partly explain why tobacco has proved such a highly cash-generative business over the years - put simply, smokers were prepared to cough up whatever price increases the tobacco companies pushed through, or indeed whatever duty increases governments around the world decided to slap on cigarettes.

However, an oft repeated question is how far we have now gone beyond 'peak smoke' and how many years the industry will be able to offset slowing growth through cost-cutting and improved manufacturing efficiency. Smoking is a habit in decline around the world, subject to increasing government interference - global smoking rates have continued to drift lower over the last five years, from 21.6 per cent in 2007 to 20.6 per cent in 2012, with only Africa seeing an increase. And they're expected to decline further still - the UK government is aiming to halve smoking rates to 10 per cent of the population by 2020, and the awareness of smoking's health implications are spreading into the emerging markets giants that the likes of British American Tobacco have targeted for growth.

BAT, for one, is now developing a range of e-cigarettes and other products for people who are trying to kick the habit - but the jury is still out on whether it will replace the mighty cash flow of tobacco, and global tobacco shares have fallen 4 per cent this year. Besides which, e-cigarettes only marginally improve the industry's ethical credentials - it may not be dealing in death, but it is still dealing in addiction.

Where companies in the business of making alcoholic beverages fall on the ethical spectrum, meanwhile, is highly subjective. If you believe selling the stuff is an unsavoury business, then as an ethical investor, steer clear of Diageo (DGE) and SABMiller (SAB). But, if like most investors you enjoy a glass of wine, the odd gin and tonic or a cheeky nightcap, you can't argue that what these companies are doing is wrong - problem drinking is arguably as much their fault as rising levels of diabetes is Unilever's.

The likes of Diageo and SABMiller nevertheless spend millions on alcohol awareness and social and environmental projects to help the communities in which they operate, and offer employment, healthcare and education to people in developing countries where those sorts of benefits are a rarity. They can certainly afford it - like tobacco companies, they generate huge profits and have been able to consolidate the world's drink makers into hugely powerful companies with significant presences in cash-generative developed markets and fast-growing developing ones. And while the shares have taken a bit of the hit these past few months as emerging economies have slowed, the long-term investment case does not face the same regulatory threat as that of tobacco.

Gambling is another industry which many believe profits from human weakness, and one which anyone of an ethical bent would give a wide berth. It’s also proved a less reliable vice for investors - compare blue-chip bookmaker Ladbrokes (LAD), for example, whose shares have barely made any progress over the last 20 years, with the five-fold increase in the shares of SABMiller or BAT over just a 15-year period (see chart above). The performance of many online bookmakers has proved worse still, mainly because the industry has proved prone to regulatory interference over the years, not least the US gaming ban in 2006 which left many UK gaming executives facing criminal charges. That's prompted a race for regulated safe-haven jurisdictions, but that comes with additional cost. And while the US seems to be considering softening its stance on online gaming, the conservative right there should not be counted upon to support the preservation of a new gambling-friendly environment when they regain power.

 

 

Defending the indefensible

For most, one suspects, defence would be the first industry crossed off the list of any self-respecting ethical portfolio. Clearly, the deliberate act of killing or maiming is accepted as fundamentally wrong, and a breach of human rights. But there is a real ethical dilemma and moral debate to be had about any military conflict. Most responsible governments avoid war at all costs, although often money and politics have as much to do with decision-making as ethics. But there are a number of so-called 'Just War' theories that might reasonably argue the case for (the) 'defence'.

This does, perhaps, stray into an ethical argument that is both unclear and inevitably inconclusive, and on which a consensus may never be reached. On that basis, there is no room for defence companies in ethical portfolios. That clearly adds companies such as arms manufacturer BAE Systems and Rolls-Royce (RR.), which makes engines for the military, to our list of sinners. Qinetiq (QQ.), Senior (SNR), Cobham (COB), Chemring (CHG) and Meggitt (MGGT) would also struggle to argue their way into an ethical portfolio.

However, those who put environmental above ethical concerns might not be so quick to rule out the sector. Many have major interests in commercial aviation, a business that emits millions of tonnes of carbon dioxide every year and which would omit airlines from some ethical portfolios. (Standard Life stopped putting British Airways (now IAG), Ryanair (RYA) and easyJet (EZJ) in its green funds five years ago.) But companies such as Meggit and Senior, along with automotive specialist GKN (GKN) are key suppliers of the composite materials used to build lighter, more fuel-efficient aircraft, which use 20 per cent less fuel than older models. Rolls-Royce’s current generation of jet engines, the Trent 1000, which first entered service in 2011, is 12 per cent more fuel-efficient than the Trent 800, which entered service in 1996.

 

Ricardo's Foxhound vehicle is a life-saver.

 

Beyond aerospace, engineers are also shaking off their reputation for industrial griminess. Take IMI (IMI) for example – on the one hand it sells high-tech valves used to convert liquefied natural gas (LNG) back to usable gas, and kit that will increasingly help America export cheap shale gas, as well as those used to run nuclear power plants. But its special valves also help vehicle manufacturers meet stringent new environmental legislation by reducing emissions and cutting fuel consumption. It’s a similar story at engineering consultant Ricardo (RCDO). As well as involvement in the design of fuel-guzzling supercars, it also works with them to reduce carbon emissions, improve fuel economy and perfect electric vehicles. It also helped design the army’s new Foxhound vehicle - to some a distasteful piece of military kit; to others a vital development to save the lives of British troops in conflict zones littered with improvised roadside bombs.

 

 

Commodities with a conscience

The prevailing view is that investors of a socially responsible persuasion had best steer clear of the natural resources sector - by their very nature the mining and oil & gas industries are inherently disruptive to the environment. They’re also often centred in politically unstable locales, and some would argue that their presence can be a destabilising factor in itself – take the tragic incident at African Barrick Gold's (ABG) North Mara mine complex in May 2011, when officers of the Tanzanian police force gunned down 19 people, killing seven, after police ranks guarding the complex from theft were attacked by several hundred locals who were intent on removing finished gold from the mine.

It's no secret that oil and mining companies from across the globe have been wreaking havoc in both environmental and political terms for decades, but without descending into outright cynicism, is it realistic to eschew investment in businesses that underpin the wider economy? Unlike some other industries that are deemed unethical, such as tobacco, it's impossible to imagine how modern societies could operate without the raw materials provided by the extractive industries. We can't do without these commodities, so assuming we recognise they’re necessities, surely it would be difficult to justify an ethical restriction on investing in these sectors on a wholesale basis? Aren't we all culpable to an extent, in our needs to heat our homes, power our fridges or move from A to B? And while the petrochemical industry might be ostensibly unethical on the basis of its record as a polluter, it's also argued that it has done more to alleviate famine (through synthesised nitrate production) in the post-war period than the collective efforts of national governments.

The central problem is that by extension it's virtually impossible to invest in a section of the economy, ethical or otherwise, that isn't indirectly reliant on what is perceived as a 'dirty' industry. There would be no wind turbines save for steel mills, no photovoltaic cells without open-cast mining, and Johnson Matthey (JMAT) would struggle to make catalytic converters vital for reducing automotive pollution without platinum - a point worth bearing in mind when casting judgement on the recent trouble at Lonmin's (LMI) Marikana mine in South Africa, where numerous miners were killed during labour disputes.

 

Numerous miners have been killed during labour disputes at Lonmin's Marikana mine.

 

Africa's mineral wealth is, of course, huge, and could eventually help bring about the economic transformation of a frontier continent where rates of poverty are still high. Poverty in Africa is predominantly rural. According to the World Bank, more than 70 per cent of the continent's poor people live in rural areas and depend on agriculture for food and livelihood, yet development assistance to agriculture is on the wane, so the importance of other sources of revenue and capital investment, such as mining, is becoming ever more important.

And although corruption is still a problem, mining codes are evolving to offer a much greater share of extraction proceeds to benefit local communities, not just those in government cutting the deals. The push towards more equitable and regionally-focused mining contracts has been helped by the emergence of more democratic and accountable governance across the continent, in tandem with agitation by local community and civil pressure groups. The economic benefits that have accrued in Central and South America because of relative political stability over the past 20 years has not been lost on African political bodies, so miners operating in Africa will increasingly be required to address stakeholder environmental issues, while setting aside provisions to adequately compensate affected communities after mining operations have ceased.

 

Resource exploration has resulted in violence and environmental damage - but it also funds community projects in the world's poorest countries.

 

The presence of western mining companies can also bring higher standards of ethical governance - the issue of how the diamond trade had been illegally used to fund bloody insurgencies throughout Africa reached a wider audience through the 2006 feature film Blood Diamond. The problem persists today, but is far smaller than its zenith in the 1980s, when the UN estimated that a fifth of the global trade in diamonds was being used to fund conflicts across Africa.

One mining company at the forefront of this ethical transformation is coloured gemstone miner Gemfields (GEM). It's taken an active role in tackling the environmental issues associated with the mining industry via its working partnership with the World Land Trust, and local surveys at the Kagem site under the auspices of the University of East Anglia and London's Natural History Museum. The company provides financial and logistical support to community schools and farmers in the area, and has constructed the Nkana Medical Clinic, while providing support an HIV/AIDS support/prevention programme at the centre. According to its chief executive Ian Harebottle, that effort isn't lost on an increasingly discerning customer base, which given the growing awareness of conflict minerals are now more inclined to steer away from products with a questionable provenance.

Few companies in the oil and gas business could truly be considered ethical based on environmental grounds, but there are plenty trying to make it a cleaner business. Take Hydrodec (HYR) for example, which has a unique refining technology that simultaneously recycles and cleans up used transformer oil. This oil would otherwise be disposed of and its long lifespan means it often contains harmful PCBs, which were banned in the US in 1977 because of evidence they build up in the environment and can cause harmful health effects. Hydrodec's unique process generates near zero emissions nor any hazardous by products while restoring the oil to an almost new condition, so it can be used again and again. The company has recently expanded outside of the US to the UK, and hopes to eventually transfer its technology to the significantly larger industrial oil and motor oil markets.

 

The process of 'fracking' in order to extract shale gas is thought to have a negative impact on the environment.

  

Quadrise Fuels (QFI) is another company looking to find cleaner fuels. Its proprietary MSAR emulsion fuel (or multiphase superfine atomised residue) eliminates the need to use expensive light distillates in the production of the heavy fuel oil (HFO) used in power generation and shipping. Quadrise has been deploying its technology within the refining segment of Saudi oil & gas giant Aramco, which supplies HFOs for most of Saudi Arabia's absurdly wasteful power generation, and shipping giant AP Moeller Maersk (CPH:MAERSK-B). Because of changes to EU maritime law governing emissions, the imperative for Maersk and other shippers to employ the enhanced version of the fuel 'Marine MSAR2' has intensified. Indeed, shipping is one of the world's big polluters – with Maersk itself recently fined £22,500 after dumping palm oil slops close to the Cornish coast.

Aside from demonstrating its viability as a bunker fuel, the Maersk sea-trials confirmed MSAR's environmental benefits through potential emission reductions. The continued success of MSAR through its various trial stages has translated into a strong, if somewhat volatile, share price performance from Quadrise, which is up by 338 per cent on our original buy recommendation in September 2011.

If you're interested in the higher returns offered by conventional oil & gas exploration and production, but are concerned about often dubious corporate social responsibility practices or environmental mishaps in the developing world, we'd suggest Parkmead Group (PMG) as a local alternative. Parkmead is focused on oil & gas in the North Sea and western Europe and the company has an excellent environmental, safety and corporate governance track record. Moreover, it's run by Tom Cross, of Dana Petroleum fame. A seasoned and shrewd executive who keeps expenses to a minimum, Mr Cross has personally invested nigh on £10m into the venture to date. And if the upcoming Pharos exploration well in the UK Southern North Sea is positive, both he and you could benefit from significant share price gains.

 

Soulful power

Britain's utilities often find themselves in the eye of the storm when it comes to social responsibility - not just because most of the world's power still comes from polluting fossil fuels, but because of the regular accusations of profiteering thrown at the industry. Labour leader Ed Miliband's recent conference promise to cap energy prices added further fuel to the mounting public anger at rising energy bills, but was met with wide derision.

The reality is that wholesale gas prices have been rising, and huge investment in infrastructure is required to keep Britain's lights on - trade body Energy UK estimates that £110bn will needed to be invested in power stations over the next decade, and it’s a similar story at water utilities, which need to invest heavily to meet leakage targets to preserve the nations H2O. On that front, Pennon's (PNN) scores well, with its South West Water business meeting its Ofwat-set leakage targets every year since their introduction, and United Utilities' (UU.) water business also has a good track record of meeting leakage targets. Severn Trent (SVT), however, missed its 2010-11 leakage targets set by the regulator Ofwat.

 

 

Returning to energy, renewable obligations as mandated by the government don't come cheap, either. Greenhouse emissions are expected to be reduced by 80 per cent by 2050 (from a 1990 baseline) - the EU, meanwhile, wants to reduce emissions by a fifth by 2020. A key plank of this strategy is the 2009 Renewable Energy Directive, which aims to increase the proportion of energy demand met by renewables to 15 per cent from 3 per cent. The problem is that renewable energy is generally not as cheap as dirtier sources – coal and gas can produce electricity at a cost of somewhere around 5-10p per kilowatt hour (kWh) whereas offshore wind costs 15-20p per kWh and solar and tidal come in well above that. These costs are expected to drop in the future as knowhow increases but, for now at least, renewables need subsidies and there has been criticism of the ‘green levy’ on consumers’ energy bills to pay for them.

No wonder, then, that burning coal and oil remain dominant, with renewables making up just 8 per cent of the generating mix. The UK's biggest generator of electricity from renewable resources is currently FTSE 100 company SSE (SSE) and there is little doubt that the company is leading the charge on greener energy among big utilities, but it does also still produce plenty of power from less ethically attractive coal-fired power stations. Drax (DRX), meanwhile currently operates the UK's largest coal-fired plant, but is in the process of shifting to predominately biomass-fuelled generation. But ethical investors need to tread carefully here, too - a recent European Environment Agency study found that some forms of biomass are no more environmentally friendly than coal, as they can have knock-on effects on land use. For its part, Drax says it will use 'sustainable' biomass that will mean greenhouse gas emissions are lower than coal.

 

The Fukushima clean up has raised questions over nuclear.

 

Nuclear, which currently generates 18 per cent of the UK's electricity is another ethically ambiguous area. On the one hand, it can help reduce greenhouse gas emissions and is fairly cheap at 5-10p per kWh. On the other, it produces a pile of toxic waste and can cause extreme environmental damage if something goes wrong - look no further than Fukushima for a recent example, where 733,000 curies of radioactive cesium leaked into the Pacific, contaminating fish supplies and making 90 square kilometres around the Japanese nuclear plant a "permanent exclusion zone" too radioactive for human habitation. That disaster prompted Germany to abandon its own nuclear fleet, with the last plant due to close in 2022.

Perhaps a better way for ethical investors to add utility exposure to their portfolio is through the smaller UK companies that are helping utility giants reduce their environmental footprint. Smart Metering Systems (SMS) installs metering equipment designed to help reduce energy consumption. Recycling is also big business. Waste management company Shanks Group's (SKS) activities focus on recycling and the production of reusable products. Another, smaller, recycling play is Straight (STT), which offers services including food waste recycling and water saving.

 

 

Supermarkets split opinion

What with stories of ripping off farmers, ruining the high street and misleading consumers, supermarkets have a bit of an image problem. Add to that questions over the quality of the produce they procure following 'Horsegate' earlier this year, and it's hard to place grocers in the ethical category. Moreover, the situation has deteriorated so much so that a grocery codes adjudicator has been brought in by the government to ensure they stick to rules governing the way they promote their goods.

It's a shame since supermarkets were originally seen as the gatekeepers of quality for consumers. Sainsbury's chief executive Justin King recently questioned whether supermarkets have forgotten whose side they are on. "Why should consumers need protecting from us when our role is to protect them and their relationships with producers?" he asked.

However, the successes of up-market Waitrose - which as a shareholder-owned co-operative boasts strong ethical credentials - and M&S Food in recent years goes to show that shoppers are willing to pay for quality and to pay a higher price, especially when they know the primary producer, ie the farmer, is getting fairly remunerated for his produce. What is actually happening is that stiff competition for the 'middle' consumer between the big four supermarkets has led to a price war to lure in customers, and it's the farmers who have lost out as the supermarkets seek to protect their margins. They will argue that they're simply trying to give 'cash-strapped families' the best deals.

Morrison (MRW), meanwhile, is a vertically integrated grocer, which means that it processes meat through its own abattoirs, sourced directly from farmers with whom it has long-standing relationships, and so supply chains are short. It knows and picks its suppliers carefully, only doing business with those who employ high welfare standards. The majority of its fresh produce comes from British farms, boosting the national economy, supporting agribusiness and rural communities. It's the ethical pick of the bunch.

Then there's the waste argument - supermarkets chuck out a lot of food, use too much packaging and demand that the produce they buy looks perfect, rejecting a cucumber simply because it's a bit wonky. To their credit, though, supermarkets have been quick to improve waste, introduce biodegradable packaging and have been instrumental in getting shoppers to use their own bags. They're also working closely with companies such as DS Smith (SMDS) and Mondi (MNDI), which make cardboard packaging and collect waste paper recycling from big supermarkets and other retailers. Both source their wood responsibly, avoiding any link to deforestation or illegal logging. Much of the raw material is recycled fibre and a significant proportion of the fresh fibre-based material they need comes from their own vast forests where felled trees are replaced. SCA Packaging, which Smith bought last year, is included in the Ethisphere Institute's World's Most Ethical (WME) Companies list. Mondi, meanwhile, offers free anti-retroviral therapy to all staff with HIV/AIDS.

 

 

High-street horrors

The collapse of a Bangladeshi garment factory in April, which killed over 1,000 workers, served up a stark reminder of the potentially high cost of the low-price clothing that has flooded the UK’s high streets in recent years. The insatiable demand from consumers for hot fashions that won't break the bank has forced retailers to continually seek ways of lowering the cost of production. In doing so, corners have almost certainly been cut across stretched global supply chains. Accusations of sweatshops and slave labour refuse to subside, seemingly with some justification.

Among the 28 brands supplied by the Rana Plaza factory was Primark, the fast fashion chain owned by Associated British Food (ABF) which has redefined the price benchmark for shopping in the UK.

It has agreed to pay compensation to the victims of the disaster, and along with 40 European retailers has signed up to a legally-binding accord on Bangladeshi factory safety and will contribute E500,000 a year for five years to fund improvements. Other British retailers, including Tesco and Debenhams (DEB), have pulled out of factories in the same Savar district where the disaster took place. The industry has been shocked into action.

 

The Rana Plaza factory (above collapse highlighted the urgent problems in the global retail supply chain (below).

 

The problem is, the necessary changes will not come cheap, and that will put pressure on already tight margins. Primark already employs 40 staff around the world monitoring worker conditions – the failure to prevent the Rana Plaza tragedy suggests more will be required. And pressure to raise wages is also strong – since the collapse workers have taken to the streets of Dhaka to demand better pay of $100 (£62.17) a month - in Cambodia it's a similar story, with many of its 500,000 garment workers earning below the country's official $80 a month minimum wage.

 

 

But again, there exists a moral dilemma, because it's also possible to argue that without these factories staff would be poorer still. Clothing accounts for 80 per cent of Cambodia's exports, and there is a real concern that efforts by organisations such as the International Labour Organization to improve pay conditions for workers risks making it uncompetitive. The worry for Cambodia is that brands simply take production elsewhere.

Low wages aren't unique to the emerging markets factories making clothes for British consumers - spare a thought for the thousands of workers on zero-hours contracts manning the shops, too. And let's not forget about the environmental impact of the global supply chain supporting the high street - shipping is said to account for up to 5 per cent of the world's carbon dioxide emissions, with consumer goods accounting for a rising chunk of the world's seaborne trade.

 

 

It's hip to be a green builder

Housebuilders may not seem to be an obvious choice for being environmentally responsible, but they are in fact making a major contribution, even if the Home Information Packs introduced in 2007 designed to highlight home efficiency have gone out of the window.

This is because modern house construction is going some way towards reducing pollution and saving energy. New houses have much better insulation against heat loss, which means they consume less energy to stay warm. Effective water heaters use less energy, while mandatory double glazing cuts down on noise pollution as well as saving heat. And if you buy into the dire warnings about Britain’s housing shortage, it's possible to argue that housebuilders make a positive contribution to society, too - although, in the context of Ed Miliband's recent conference speech, it's equally easy to paint them as villains deliberately limiting the supply of new homes to keep their prices artificially high.

Just as housing construction is becoming greener, so infrastructure construction companies have been working hard to minimise their footprint and make building less of a dirty business. And these targets are not simply a concession to environmental pressures - using less energy also makes economic sense.

Take Carillion (CLLN), for example. In 2011 it set up a target to capture water consumption data with a view to reduce consumption by a quarter by 2015. It is also working towards sending zero non-hazardous waste to landfill in the same time scale. And the group has also set up a natural habitats fund, contributing over £370,000 to 60 projects since 2001. Meanwhile, Costain (COST) moved to accurately report its carbon footprint using independent accreditation, and is on target to achieve a 55 per cent reduction in emission intensity by 2020.

Construction is one of the world’s most dangerous professions - 28 per cent of all industrial fatalities in the UK are on building sites. But large infrastructure groups are also working hard to ensure sites are safer - not easy if, like Balfour Beatty (BBY), you're operating hundreds of sites in 90 countries worldwide. Its target is zero harm, which means no deaths, injuries to the public or harm to health. Sadly, this wasn't achieved last year, but the group did manage to reduce the number of serious injuries and deaths. In fact, 20 of its 34 operations achieved zero harm levels.