What is ethical investing?
What is Ethical Investing?
3 April 2023
Ethical investing is when an investor uses ethical values and principles as the primary filter to select their investments. Ethical investing gives the individual the power to allocate capital to companies whose practices and values align with their personal beliefs and values.
For example, some ethical investors choose to use negative screens to avoid investing in companies that are involved in negative activities, such as human rights abuse, animal cruelty, gambling, coal or uranium mining, emission of fossil fuels, production and sale of alcohol, tobacco, weapons or firearms.
Other ethical investors choose to seek positive investments in companies and sectors that they believe to be supporting society, individuals and the environment. This could include choosing to invest in companies that support health care, aged care, education, clean and green technology, recycling and environmental regeneration projects.
The term Ethical investing is sometimes used interchangeably with responsible investing, sustainable investing, green investing and ESG investing. What’s important to note is that what is “ethical” will depend on each person. Often what someone defines as ethical may not be the same as another person’s definition. That’s why it’s important to carefully consider your own definitions as well as how an investment defines what is ethical and make sure they align with the impact you’d like to have.
Please note that this guide contains general information only and does not take into account your personal circumstances, financial situation or needs. Before making a financial decision, you should read the read the relevant Product Disclosure Statement and Target Market Determination of the specific financial product and consider whether the product is right for you and whether you should obtain advice from a financial adviser. Your investment in the Blossom Fund is subject to investment risk including the loss of capital invested and investment returns.
Why is ethical investing good?
Ethical investing means taking action towards a better future, on the basis that:
- Every $ counts
- You can make a real difference
- You can invest and feel good knowing that your money supports the environment and the planet.
How to invest ethically?
Here are some of the key factors to think about when you are choosing to invest ethically.
- Consider your financial situation, financial goals and overall financial plan to ensure that responsible investing is the right fit for your personal and financial objectives.
- Get clear on your own personal ethics and beliefs. There are tools you can use to help you define what industries, practices or services you’d like to support and what you’d like to avoid investing in. This will help you narrow down the available investment options that align with your values.
- Get to know the different styles of ethical investments. There is a range of ethical investing options and styles that use different approaches to select the investments and to make an impact.
- Research the investment products and investment portfolios to make sure they deliver on what the funds claim. This is important to check the mission and values of the investments and ensure that their ethical charter aligns with your own values. Be sure to read the Product Disclosure Statement for any investment you are considering and to ask questions if you are unsure seek advice before making an investment decision.
- Check the ratings and review. There are many independent rating houses that do due diligence and research on ethical investment options and fund managers. These ratings can provide good information and a basis for making a more informed decision.
What is the difference between ESG and ethical investing?
ESG investing (aka sustainable investing) is a decision to no longer support practices that are detrimental to the environment or society. It is an investment approach that tackles environmental, social and governance change by evaluating whether a company or government is having a positive or negative impact.
ESG investing means using Environmental, Social and Governance factors to evaluate a company’s behaviour.
- Environmental criteria consider how a company safeguards the environment, for example, how corporate policies address climate change.
- Social criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates.
- Governance deals with corporate governance and a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Companies can be screened in or screened out of a portfolio depending on these factors. In essence, it is a way of ensuring that money is only flowing to companies that are having a positive impact on the environment.
How can I invest ethically in Australia?
There are a number of ethical investment options available including ethical superannuation funds, managed funds, mutual funds, Exchange Traded Funds (ETFs) and direct investments.
For investors who are looking at retirement planning through their super fund or self-managed superannuation fund, there are many options for inclusion of investment options that include ethical principles and provide responsible returns.
When investing ethically in Australia look for products and funds that have been certified in accordance with RIAA’s Responsible Investment Association Australasia Certification Program which tests whether a product or fund’s investment intentions and processes are consistent with its responsible investment claims” according to the website.
It can be a good idea to seek professional financial advice and engage with a financial adviser to help you find an ethical investment product that fits your values.
If you’re looking for a Financial Adviser or Ethical Investment Specialists you can search the RIAA directory which features financial advisers that are certified members. Another option is the Ethical Advisers’ Co-op directory.
What are the 4 types of investments?
Broadly speaking there are 4 types of ethical investments. :
1. Socially Responsible Investing Funds (SRI Funds).
SRI funds typically screen out or avoid investing in controversial areas such as gambling, firearms, tobacco, alcohol, mining and oil.
2. Environmental, Social and Governance Funds (ESG Funds)
ESG funds consider the environmental, social and governance risks (ESG risks) and opportunities that may impact a company’s performance. Essentially (ESG) investing refers to a set of standards that socially conscious investors use to screen their investments.
3. Impact Funds
Impact funds are investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. In this strategy, the impact is of equal importance to the generation of a positive financial return.
4. Philanthropic Investment Funds
Philanthropy funds are focused more on the impact that the investment will make on social causes. The emphasis often places more importance on this over the performance or potential financial reward of the investment.
What's next for ESG investing?
According to Bloomberg International, worldwide environmental, social and governance (ESG) assets surpassed $35 trillion in 2020, up from $30.6 trillion in 2018 and $22.8 trillion in 2016.
Ethical investments now represent a third of the total global assets under management, according to the Global Sustainable Investment Association. The report highlights that, assuming 15% growth, which is half of the pace of the past five years, Ethical and ESG assets could exceed $ $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management.
With the rise of Australian sustainable and socially conscious investors and the demand by individual investors and institutional investors to invest in companies that provide sustainable investment or produce a positive impact, it’s likely that we will see the introduction of many more ethical portfolios and ethical investment options for investors to choose from in the wealth management space.
At Blossom we are on a mission to leave your savings and the environment much better than we found them. Not only is the Blossom Fund good for your savings, but it's also good for your conscience. At Blossom, we believe your money can do good as it grows.
We know how much damage unethical investing can do to the environment and the people around us. So we've made it our mission to invest as if our lives and the planet depend on it because they do.
We recommend seeking financial advice, reading the Financial Services Guide and Product Disclosure Statement (PDS) or working with a financial professional, investment manager or financial adviser to help you select the right investment option and fixed income solution for you. There are many ways to invest in fixed income investments, and getting the right solution for you may involve a range of investment vehicles, a specific investment portfolio or a blend of investment strategies.