Building wealth while maintaining a social and environmental conscience may seem implausible to some – but it’s not.
Ethical investing is a major trend within financial markets and people are making plenty of money investing in companies with green credentials.
If you want to start investing ethically, your first step could be to ensure your superannuation, or the stocks in your investment portfolio, aren’t funding activities like coal mining, tobacco or human rights abuses.
The next level in ethical investing is to filter your decisions through a positive lens by having a stake in companies involved in things like clean energy, medical breakthroughs and developing efficient transport.
So, how do you check whether your superannuation is invested in line with your ethics?
Check your fund’s ESG policy
Industry Fund Services head of technical services Craig Sankey said you can begin by reading your fund’s ESG (Environmental, Social and Governance) policy, which you can find on their website.
ESG policies will explain which sectors, such as tobacco and fossil fuels, the fund excludes from its investment options.
“Your first step would be considering whether you’re comfortable with your current fund and, if not, if you’re just looking to change investment options or actually looking to change funds completely,” he said.
Change an investment option within your existing fund
If you want to switch into a fund’s ethical option, you can log into their website with your membership number and password, and alter your investment option.
Investigating other funds
You can compare different fund’s ethical investment options by entering which sectors you want to avoid or support on the Responsible Returns website, which lists products certified by the Responsible Investment Association Australasia (RIAA) as having met responsible investment standards.
Moving into a new superannuation fund
If none of the above options work out, then the easiest way to change superannuation providers is to contact the fund you want to move to and be guided through the necessary forms.
Ethical investing is booming
Ethical investing has become more popular in recent years, with more than $1.1 trillion, or 37 per cent, of professionally managed money in Australia considered responsible investment, according to the Responsible Investment Association Australasia (RIAA).
The responsible investment market grew by almost one fifth over 2019.
And Centaur Financial Services managing director Hugh Robertson said investing your cash ethically won’t have a major impact on your returns.
“It doesn’t cost you more to have a conscience,” he said.
For example, the Vanguard Ethically Conscious International Shares Index ETF returned 24.43 per cent over the year to the end of March 2021, while the Vanguard International Shares Index Fund achieved a 23.60 per cent return.
But it’s important to understand that the label ‘ethical’ is applied to a wide range of products, so always make the effort to learn exactly what companies your money is supporting.
For example, as at the end of March this year, Vanguard Ethically Conscious Australian Shares Fund’s largest holdings were in the big banks, biotech CSL, retailer Wesfarmers and iron ore miner Fortescue Metals.
“Choose what your shade of green is,” Mr Robertson said.
“You have got to be able to read the label on the product.”
The RIAA’s Responsible Returns website can help you find ethical superannuation, banking and investment products that best reflect your interests.
All of the products mentioned on the site have been tested to check whether the product or fund’s investment processes actually reflect its responsible investment claims.
Mr Robertson said generally millennials are more likely to seek out information about ethical investing than older generations but a broad range of people are keen to know more once they’re aware of the options.