What you need to know about Animal Testing and Ethical Funds

The basic animal testing ethical screens are:

• Medical testing on animals; and
• Cosmetic testing on animals.

This seems simple doesn’t it? But the theory is much easier than the practice. Surely testing on animals is black and white I hear you say! But in practice it’s not so easy, because in our society we have laws which force companies to test on animals even when products have been used on humans for years. Madness isn’t it! So even if you are a company where not testing on animals is part of the DNA of your business and process sometimes you cannot avoid it.

European Reach Legislation impacts on Animal Testing

 
George Latham, formerly of Henderson, but now of WHEB, says that Croda was a great example of this. Croda he explained is a ‘great company’ they make plant derived chemicals as active ingredients in products such as skin care creams – all natural, all plant extracts. But as a result of the European REACH legislation under the European  Chemicals Agency which started on 1st June 2007 Croda had to retest its products on animals and Henderson were forced as a result to disinvest from Croda at the time.

The Definition of Animal Testing for Cosmetic Purposes

At Worldwise Investor we define animal testing in two ways – for medical, or cosmetic purposes.  We have in the past included within the definition of cosmetic testing, testing on household products as well.

It could be argued that we should show three types of testing on animals – animal, cosmetic and household products. This is a bit of loop hole in our fund library because not all Investment Houses treat household products the same as cosmetics. F&C allow testing of chemical products on animals, but apply a no test policy for cosmetics. We currently are showing F&C as applying an animal testing for cosmetic purposes ethical screen.

How do investment funds look at animal testing?

There are three things you need to know about the basic criteria:

1). Funds can use a percentage of turnover rule:

If a company does not have a significant amount of its turnover related to animal testing then the Fund Manager can still invest in that company. In our research we discovered that the Alliance Trust (Aviva) Sustainable Future funds have a 10% rule, which means that they only exclude companies which derive greater than 10% of turnover from ingredients, or products tested on animals for cosmetic reasons. At Worldwise Investor we have taken the view that this is not sufficient, because cosmetic testing is acceptable under this policy. So if you use our fund library to search for a fund which does not test on animals for cosmetic reasons you will not find any Alliance Trust (Aviva) Sustainable Future funds. Of course the Alliance Trust (Aviva) UK Ethical fund has more stringent criteria and it avoids animal testing for cosmetic, or medical reasons.

2). Funds can apply a fixed cut-off date for when then the last animal testing was done.

This allows a company to draw a line in the sand past which it will not use products, or ingredients which have been tested on animals.

3). Funds can apply a rolling cut-off date for when the last animal testing was done.

This was really a policy designed to help start the prevention of testing on animals. Provided a company has not tested the product, or ingredients in the product, within 5 years then it is acceptable. Unfortunately critics of this policy point out that it can take 5 years to launch a product and so this provides little incentive to companies to cut animal testing from their processes. It is somewhat disappointing to find that a company like F&C in their Stewardship range have decided to apply this rule on cosmetic products. Currently applying a five year rolling rule does qualify as within the Animal Testing Cosmetic ethical screen on Worldwise Investor, but as we collect greater amounts of data from Investment Houses we may need to reconsider this classification.

Investment House Policy

Animal Testing is a very difficult area to research because each Investment House has different caveats and explanations for what they are doing. It is also true that animal testing criteria can, while still being within the mandate of the fund, change materially depending on how the Fund Manager chooses to interpret their policy. The following anomalies, or points of interest came up in our research: 

1. Jupiter Ecology fund - We do not report that this fund has an 'animal testing for medical purposes ethical screen'. Jupiter Ecology do however exclude companies that test on animals for medical reasons unless they can demonstrate an outstanding commitment to minimise animal testing, or make an outstanding contribution to sustainable development. 
2. In January 2012 F&C changed their policy to allow animal testing for medical purposes. However, they do exclude companies testing on great apes.
3. The Aviva Sustainable Future Range accept animal testing if it does not represent greater than 10% of the companies turnover, unless the company's policies to minimise animal testing are considered good practice.
4. Some Fund Managers have decided to avoid companies who test on animals for cosmetic reasons, but do not have a stated policy within any of their fund documentation on this. Two examples of are the CIS Sustainability fund range and the Cheviot Climate Assets fund.

We must be aware that, like it or not, animal testing seems to be enshrined in law. Some Fund Managers have taken what to many will seem like a reasonable stance in saying that they will invest in companies who act to minimise the animal testing they do. While this may appear logical many investors do not want to condone this type of activity at all. In our fund library we have tried to cater for this type of investor in identifying screens, but we too interpret the information we have and as such, if as an investor you are very concerned about animal testing, it is best that you too read how the Investment House defines what it is doing.