A Guide to Australian Ethical Investments in 2020
We have just turned the corner on a new decade which symbolises a fresh start and a clean slate for all the ambitious goal setters in the world. In preparation for your new year resolutions, you can ask yourself these three questions:
- What dream do you want to achieve next year?
- How are you going to make the next 10 years of your life memorable?
- What change would you like to see in the world, and how can you be part of it?
At Pursue Wealth we know many of our members are compassionate people who support a multitude of causes. While everyone is in a period of reflection and planning, we thought it would be an opportune time to introduce the topic of Ethical Investing to our community.
What is Ethical Investing?
Ethical Investing is an investment strategy which considers the social and environmental impact of a company on top of measuring their financial returns. The objective of an ethically conscious investor is to stop supporting businesses that engage in activities harmful to people, animals and the planet. Without the financial support of investors, these destructive companies will eventually cease to exist. An investor wanting to accelerate the path to sustainability may also seek out companies that are proactively working to better the planet and conditions for people and animals on it.
Ethics on a Spectrum
When you first delve into ethical investing, you may notice differences in how various funds define “ethical”, and similarly, there will be inconsistencies in how companies evaluate their “ESG – Environmental, Social and Governance” factors as well. This is due to a lack of industry standard for the appraisal of ESG factors and usage of the term “ethical” in a product name. Relative to traditional forms of investing, ethical investing is still nascent and has mostly gained traction in the last few years as more consumers are choosing to be mindful with their money. Over time as this niche is further developed in Australia, we anticipate stricter regulations to come in force, which will simplify the process for people wanting to invest ethically.
In the meantime, to help you better understand the potential definitions of ‘Ethical’ used by various funds, we have put together a summary of five investment criteria, as shared in a previous blog post by Australian Ethical.
- Negative screening – Avoiding companies and industry sectors that cause unnecessary harm to people, planet and animals (e.g. gambling, weapons, fossil fuels)
- Positive screening – Seeking out companies and sectors that are progressing society (e.g. education, technology, healthcare)
- Sustainability themed investing – Focusing on assets that enable sustainable solutions (e.g. clean energy, forestry, sustainable water supply)
- Impact or Community investing – Providing finance to businesses with a clear social purpose, or providing capital to supply goods and services to underserved communities
- Corporate engagement – Influencing corporate behaviour through direct engagement with senior management and/or boards
Most funds will only include 1-3 of these actions so it is important you understand how they have defined ‘ethical’ and determine if it aligns with your personal principles.
Will Investing Ethically Compromise My Returns?
This is a good question and we are happy you are thinking about your financial outcome. Making ethical investments does not necessarily mean you have to compromise on financial returns. There are even some sustainable investment funds that have outperformed their non-ethical peers in the past few years. One thing to note, however, is that the additional research required for an ethical fund to run will often translate to higher admin or management fees. As always, we advise everyone to do their own thorough research before making an informed decision about their investments.
Thinking long term, unethical businesses are not only performing a disservice to society and the environment, but they are also unsustainable financially. For example, a company that drains a lot of resources from the earth (e.g. water) in their day to day processes, will struggle to continue their operations in the long run because this resource will become a scarce and expensive commodity which will drive up the cost of operation and lower returns for shareholders.
Are Ethical Investments for me?
In a study released by the Responsible Investment Association Australia (RIAA), 9 in 10 (92%) of Australians expected their superannuation or other investments to be invested responsibly or ethically. Similarly, their 2019 survey revealed more than half of Australians would consider making responsible ethical investments in the next one to five years, and millennials (1980-1995) were the most likely group of investors to consider investing in ethical companies, funds or superannuation.
These statistics are not surprising. The course of society, the environment, and our wildlife is largely driven by humans and our daily consumptions. As such, Australian’s are recognising we all share an equal responsibility to care for each other, the planet, and our animals to ensure future generations have access to the same rich resources we have today.
The rise of mindful consumerism has been a small win in a long journey to restoring the damage we have done to our planet and wildlife – the reality is, changing one individual’s harmful behaviours will only go so far. If you want to make a more significant impact, a stance needs to be taken against large unsustainable companies that are rapidly degenerating our society, planet and animals.
Being conscious of how your investments are impacting the world, and actively choosing to take action for positive change will go a long way in accelerating sustainability. Most people working in Australia would have some form of investment through their superannuation fund, and some people will have personal investment portfolios as well. If investing ethically is your new goal, you can start by evaluating the investments you already have.
Here are some examples of causes you can support through ethical investments, and industries you may want to avoid investing in:
Seek investments in:
- Clean energy
- Sustainable products
- Medical solutions
- Universal healthcare
- Innovative technology
- Responsible Banking
- Aged Care
Avoid investments in:
- Coal/gas usage and expansion
- Oil firms
- Forest logging
- Weapon manufacturing
- Tobacco industry
- Harmful products
- Human right abuses
At Pursue Wealth we have recently had an influx of new members wanting to learn more about Ethical Investing and we love this positive movement. Our business mission statement is “providing innovative financial advice that inspires our members to achieve financial freedom whilst balancing a fun and fulfilling lifestyle”. We feel it is important we support our members in living by their values and if this can be facilitated through investing their money ethically, then we will do our best to facilitate this.