Being more ethical has become a hot topic as we become increasingly aware of our overall impact. Some ways in which you can live more ethically are well known such as reducing your carbon footprint or avoiding fast fashion. However, there are also key decisions that you can make with your superannuation (super) and how it is invested to create a more sustainable and socially just world. Ethical investing is a strategy where the investment is based on the ethical and moral principles of a company as well as the financial return. If living ethically is something that you are passionate about, then this is one area that you can create a real impact by simply re-evaluating where you are investing.
Ethical investing, also known as socially responsible, sustainable, socially conscious or green investing, is when the companies which are being invested in have been put under the microscope to determine how ethical they actually are. In a nutshell, this investigation considers three key factors; Environmental, Social and Corporate Governance (ESG), as well as the ripple effect caused by the impact of these factors. Each factor is analysed both qualitatively and quantitively and the data is converted into composite scores. It’s then determined, by the investors, if these scores pass their criteria for what an ethical company is and, therefore, if they are deemed ethical enough to be invested in. Australian Ethical, one of Australia’s leading ethical investment super funds, seeks out companies who are creating a positive impact and uses their Ethical Charter to determine which ethical companies they invest funds into. This charter includes seeking out investments which develop locally based ventures, preserve endangered eco-systems and contribute to human happiness, dignity and education. It also stipulates that certain investments are avoided, including investments that unnecessarily pollute land, air or water, market products or services in a misleading matter, or entice people int financial over-commitment. Australian Ethical finds that this approach “gives investors a way to create wealth and have a positive impact on the world.”
Creating wealth, as mentioned in the above quote, is one of the key goals of any super investment. Providing a competitive return to grow your asset and meet your future financial goals is a must when deciding on any super investment strategy. Therefore, it’s important to keep in mind that the overall growth outcome for ethical investments can be just as positive as other strategies. When looking at an ethical investment strategy, the companies being invested in do vary greatly from other strategies, as shown in the graph below, and typically some high-growth industries are avoided. However, this doesn’t necessarily mean a weaker investment strategy. Some investors are noting that ethical investments, where a well-run and environmentally and people responsible company is being invested in, “is more likely to exhibit a greater level of resilience and outperform its peers than one that does not.” Furthermore, Medium.com claims that an ESG analysis has also be seen as a risk management tool and can provide stronger returns compared to the general stock market.
When you are deciding how to invest your super, it’s important to think about what ethical means to you and if ethical investing is an area that you’d want to look into. For some, an ethical investment strategy is a way to give back to the planet and its inhabitants or avoid investing in certain industries. For others, the ESG analysis undertaken by ethical companies is a sign of the company being well run, caring for its people, conscious of environmental outcomes and the company’s overall resilience. If this is an area that you are passionate about and an ethical investment strategy is something that you would like to explore further, then contact the team at Positive Dynamics on 1300 784 084 to find out how we align your future financial goals with an ethical investment strategy unique to you.