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Apr 3, 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.
Ethical investing means taking action towards a better future, on the basis that:
Here are some of the key factors to think about when you are choosing to invest ethically.
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.
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.
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.
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.
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.
We believe unethical investing damages the environment and people around us. We’ve made it our mission to support responsible investment. We’ve adopted our ESG Policy.
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.
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