You might carry a ‘keep cup’ to reduce waste. You may have purchased an electric or hybrid vehicle to avoid relying on fossil fuels. But what about investments – what about investing for the greater good? Ethical investing (also commonly known as sustainable or responsible investing) has captured the attention of investors around the globe. According to the Responsible Investment Association Australasia (RIAA), more than $2.8 trillion in funds are managed using at least one responsible investment approach.
If you are thinking about starting on your ethical investment journey, following are popular approaches to ethical investing, how to get started, and factors you need to consider.
Approaches to Ethical Investing
Of the different approaches to ethical investing, following are some of the most common that you might like to consider.
Actively seeking out companies that are trying to make a difference.
Excluding industries that you do not want to be associated with – such as the weapons, tobacco, alcohol, and gambling industries.
Considering specific environmental, social and governance metrics and comparing them to their peers. You may consider companies that are actively improving their score, or companies that are already ‘best-in-the-class’ with established high scores.
Looking for companies whose operations are focussed on solving significant challenges and making an impact, for example companies involved in affordable housing projects.
How to get started
Here are the common ways people can get started in ethical investing.
Managed Funds and ETFs
There are many managed funds and ETFs that give investors access to ethical investment options. These funds and ETFs assess a company’s financial performance along with exposure to environmental, social and governance risks and opportunities.
Many mainstream providers now offer ethical or sustainable investment options. Some superannuation funds are also focussed solely on ethical investing.
Self-Managed Superannuation Fund (SMSF)
An SMSF gives you greater control over how your funds are invested. This allows you to be very specific about the investments you choose.
Factors to consider
Certain key factors should be considered when choosing your ethical investments.
What are you passionate about
Consider what industries you want to support and what industries you want to avoid, so that you can align your investments with your values.
So you want to make the world a better place, but you also want a reasonable return on your investment. While remembering past performance is no guarantee of future performance, focus on investments that provide long-term returns.
The cost of investments is an important consideration. Are the costs you are paying reasonable?
Greenwashing is when a company or fund pretends to have sustainability or environmental credentials, but in reality this is not so. This can be a common occurrence in companies as there is minimal regulation in this area. You need to do your research and there are online tools that can assist you.
Accru can help when considering these issues. Contact your local Accru advisor to discuss any matters related to Ethical Investing.