MBA, BSc, DipFP
Financial Planner / Managing Partner
What Is Ethical Investing?
Ethical investing, sometime referred to as Socially Conscious investing, is:
‘the practice of investing in companies whose business is not considered harmful to society or the environment’ [i]
But what does this mean for you as an individual investor and why does it even matter?
What Does Ethical Investing Look Like to You?
We all have our own moral compass that guides us in our decision-making process. When you decide to invest ‘ethically’ you first need to decide what your frame of reference will be. Some of the metrics on which you might evaluate an investment in a company, or industry, can include:
- Environmental –does this company do damage to the environment in the manufacturing of their product or packaging, or do they use unsustainable ingredients, palm oil for instance
- Human Rights – does this company exploit workers or use child labour
- Fair Trading – does this company pay fair and reasonable prices to primary producers for the ingredients/products they use in their business
- Animal Rights – does this company test their products on animals, infringe on animal habitats or use animal products in their production process
- Political – does this company operate in a country or under a regime which is repressive in any way
- Faith – does this company reflect a particular religious faith in their business dealings
Where Can I Invest Ethically
Essentially you have two options. Direct investment, or through some form of fund like superannuation, managed funds or exchange traded funds.
Investing directly via shares provides you with the greatest flexibility in terms of aligning your investments with your values. It does, however, require research above and beyond that which you might normally undertake.
When investing via a fund, whether it be Superannuation, Managed or an ETF, you will not be able to choose specifically where your money goes. Generally ethical funds avoid ‘sin stocks’, These are typically companies involved in weapons manufacture, gambling, alcohol, and fossil fuels. But if there is something very specific you want to avoid, like animal testing for instance, you will need to do some due diligence, or consider direct investment. Some funds have a certain focus, so you may be able to choose one that suits you best.
Where To Start
Whenever you invest it’s important to do your due diligence in relation to performance and financial stability. But if you are wanting to invest ethically, and you have determined your personal set of criteria, look at their Mission Statement and, if they have one, Code of Conduct or Code of Ethics. Then it’s time to make sure they do, indeed, walk their talk by digging deeper. A good financial planner can help you with this research.
Why You Should Care About Ethical Investing
Choosing where you invest your money based on ethics means you are living in alignment with your own values. Supporting those organisations can have a positive impact on their ability to continue to grow their business and make a difference in the world.
Of course, this may limit your options in terms of where you invest, but it doesn’t necessarily mean you will be limiting your ability to achieve good returns. In fact, according to a 2020 report by RIAA (Responsible Investment Association Australasia) ethical funds returned an average of 11.3% over three years, which compares to 10.3% on the S&P/ASX 300 Index.[ii] So doing good can also do good for your hip pocket.
By investing ethically, you can help to bring about the social change you would like to see in the world.
If you would like to review and improve the ethics of your investments Manly Financial Services have the expertise and knowledge to ensure your money is not only working for you, but is doing so ethically. Give us a call on (02) 9976 3388 to have a chat, or contact us via the below link.