The blogpost we wrote last year on Ethical Investing in 2020 remains our most popular article yet. In the spirit of bidding 2020 farewell, and ushering in a new year we thought we’d revisit and re-do this topic- with the benefit of 2020 hindsight.
From the bushfires that ravaged through Australia in early 2020 that threw climate change into the forefront of discussion, to the Black Lives Matter movement taking centre stage for systemic racism and social injustice, and the COVID pandemic that emerged from animal wet markets: ethics is on the table for discussion. More and more, ethics and sustainability have become common topics of enquiry, and wide-spread discussion, both within the financial planning world and broader. Driven by numerous factors, such as those mentioned above, the global awareness of the need to know where your money is invested, and what those investments potentially cost the earth, or impact human rights, is on a steady incline.
Investors have the power to direct funds towards where they are needed. For example, it is possible to invest in managed funds that are sustainability focused, and have your superannuation funds more consciously invested in companies that align with your personal values.
This article discusses ethical investing with a view to combating climate change, and protecting human and animal welfare- however these are illustrative suggestions and opinions- not advice.
Ethics in Investments
Ethical investing can also be referred to as:
- Socially responsible investing,
- Impact Investing,
- Sustainable Investing, and/or
- ESG (environmental, social and governance) investing.
The term “responsibly managed investment” can sometimes be used interchangeably with “ethical investments” (or one of the above) however there are nuances between the two types of investments which we will discuss further below in the article.
So, what is ethical investing? How do you invest ethically? How do you know your investments, and/or your Super is invested sustainably? Why should you even care? We’ve unpacked this, and more, in the below blog post.
What is Ethical Investing?
According to an article published by Canstar in 2018: “Ethical investment (or responsible investment)… is when an investment is selected to complement views on moral, environmental or political matters.”
Ethical Investing is an investment strategy option that considers the social and environmental impact of a company or fund as well as their financial returns. An ethically conscious investor is someone who seeks to use their funds to support companies that operate to a high ethical standard, whether it be creating renewable energy sources, paying equal wage to all workers, and/or operating a carbon-neutral business, amongst others. Ethical investing seeks to stop supporting businesses that are harmful to the planet, to people, and sometimes to animals too.
Companies often rely on funding from investors to expand their operations. As an ethical investor, you can help shape the future of our world by being more selective of the businesses you support. To date, companies in the fossil fuel industry, and conglomerates invested in gambling and tobacco were seen as the major financial drivers in Australia’s economy. As a result, many of our super funds are by default heavily invested in these industries that may no longer align with the ethics of Australian people, especially in our Gen Y and Gen Z demographic. In other words, Ethical investing allows us to “put our money where our ethics is” so to speak!
What Matters to You
Ethical investing is a very personal choice; as the matters you consider most important may not be reflective of what another considers most important. For example: one investor may care deeply about investing in renewable energy but not mind so much if their super fund invests in gambling businesses, or horse racing. For another investor, animal welfare could be front and centre of their ethical values, while combating climate change is less so. Other investors may want to ensure they aren’t supporting companies connected to child labour; or want to avoid forestry logging or mining.
For the average Australian, there are three key areas in which they are able to select ethical investments: with their choice of banking institution, with their choice of Superannuation fund, and with their choice of investments/investment funds.
The hard fact of the matter is that many banks in Australia do business with mining companies, gambling businesses, logging companies, and companies that can be connected to alleged child-labour allegations. It can be hard to know who exactly your bank of choice does business with as banks don’t publicise this information. However, in recent years a number of banks have taken a stance against unethical investments and business practises, and have publicly published who they do, and do not invest in, and do business with.
An example of one of the banks who have done this is Bank Australia. Bank Australia is a customer-owned bank with a strong commitment to being carbon neutral, operating on 100% renewable energy, and not investing in any fossil fuels. Bank Australia states that their money is ‘clean’ because it is never loaned to industries (eg coal, nuclear weapons, gambling, tobacco, live animal export) that do harm to the planet, animals, or humans.
Bendigo Bank, ME Bank, and Suncorp Banks are other examples of banks also moving towards more ethical operations, and avoid investment in fossil fuels.
As always, however, it is important to consider your individual circumstances and other factors as well when choosing the best bank for you – e.g. customer service, administration fees, interest rates, and so on.
Ethical Superannuation Funds
Did you know that Australia’s collective pool of superannuation funds is the third largest pool of retirement monies in the entire world? As at June 2019 the total number of funds under super management totalled $2.9 trillion Australian dollars.
While most funds offer a “greener” or “sustainable” option to investors, many of them still invest in companies that could be perceived as unethical, such as livestock exports, gambling businesses, logging businesses, fossil fuel companies, or uranium miners. It is important to understand the investment framework of your fund, and explore alternatives if it doesn’t align with your own set of personal values. This is a very personal choice for you, and the options your fund has on offer can differ from fund to fund.
Some superannuation funds that may be of interest to ethical investors are Australian Ethical Super, Future Super, Good Super, and Verve Super. Over time, the universe of ethical super funds will grow and change, so it is important to do thorough research or speak to your financial adviser before making any significant changes.
Whether you are a first time investor or a more experienced investor, there are many ethical options to choose from.
Although past performance is not indicative of future returns, many ethical funds have been demonstrating strong returns over the last few years; growing with the momentum of increasing awareness and need for sustainable initiatives and businesses.
What is the difference between Ethical and Responsibly Managed?
A term one might hear used almost interchangeably with ethical is “responsibly managed” (RM). However, the use of this term as another description for ethical could be considered completely subjective. Many large banks and industry super funds state that they are responsibly managed due to their investments in items such as, for example, clean water projects, however simultaneously still invest in coal. The Responsible Investment’s Associationof Australian (RIAA) published a Benchmark Report in 2018. In this report the RIAA noted that over half (55.5%) of Australia’s professionally invested assets are responsibly managed- which includes funds that may consider ESG (environmental, social and governance), exclusions, sustainability-themed and impact in their approach- to varying degrees. While responsibly managed assets can include ethical and sustainability driven companies, it is important to note that not all of these RM investments could align to your personal ethical investment approach.
Investing your money ethically
How do you know what to look for, when selecting a bank, or a superannuation, or an investment fund? Here are some topics you may want to consider:
Search for investments in:
- Clean energy
- Sustainable products
- Medical solutions
- Universal healthcare
- Innovative technology
- Responsible Banking
- Aged Care
Avoid investing directly into, or in funds that invest in:
- Coal/gas usage and expansion
- Oil firms
- Forest logging
- Weapon manufacturing
- Tobacco industry
- Harmful products
- Human right abuses
Our Ethical Investment Principles
At Pursue Wealth we have recently had an influx of new members wanting to learn more about Ethical Investing and we are absolutely here for this movement towards a more sustainable future. We feel it is crucial that we support you, our members, in living by your values and if this can be facilitated through investing their money ethically, then we will do our best to facilitate this. Our business mission statement is “providing innovative financial advice that inspires our members to achieve financial freedom whilst balancing a fun and fulfilling lifestyle”- and we understand that knowing your financial freedom comes from ethical, sustainable sources is inspiring to many of you.
If you have read through this article, and you feel passionate about preserving our planet, cultivating sustainable practices for animals and/or supporting better human rights, you can now use your money mindfully to support the causes you care about- and we would love to help you do this!If you want further guidance on how you can get started with ethical investments, you can book in to chat with one of our advisers through this link.