What is ethical investing?
Ten years ago, climate change wasn’t on most people’s radar. Sure, we’d heard the term and started to question what it was all about, but very quickly it’s become the most important issue facing the world today.
Now climate change and its effects on our future is at the front of our consciousness through ongoing activism, politics and increasingly the decisions businesses make.
It’s also provided the catalyst for an approach towards environmental, social and governance (ESG) investing, also known as socially responsible investing, ethical investing, green investing, and impact investing, all with the same goal: creating positive change by thoughtfully and intentionally investing your money.
While the notion of ethical investing has been around since biblical times, it wasn’t until 2006 when the United Nations Principles for Responsible Investment (UN PRI) was released that it gained institutional support.
The UN PRI initially led to a commitment of $45 trillion in signatories’ assets, with the Global Sustainable Investment Alliance, a consortium of international sustainable investment organisations, issuing its inaugural Global Sustainable Investment Review in 2012.
Today’s investors are now more aware than ever of the issues climate change, deforestation, poor labour practices, and pollution cause, and want to make informed decisions about where their money is put.
In fact, in the US last year alone an estimated $51 billion flowed into ESG funds, twice the level of 2019. Globally the sustainable investment industry is now thought to manage more than $3 trillion of funds.
Why you should consider ethical investing
Ethical investing gives you the power to allocate your hard-earned money toward companies whose practices and values align with your own beliefs, whether they be rooted in environmental, social or educational causes.
Investing ethically can also mean solid returns. An analysis by the Responsible Investment Association Australasia in 2020 showed responsibly invested Australian share funds have produced an average return of 11.3% over three years and 9% over 10 years. This compares with returns of 10.3% and 7.8% respectively for the S&P/ASX 300 index.
As ethical investing gains popularity and importance, it will also encourage other businesses to improve their ethical practices to attract more funding.
So now you can confidently invest your money and feel good about doing it.
Four factors of ethical investing
There are a number of elements when considering ethical investing, with the four key factors being:
- The feel-good factor – probably the key driver for most people. If the companies you invest in deliver good returns, then you’ll benefit financially from your values, and provided they share your values, then you could be playing your part in helping change the world for the better.
- Potential for profit – ESG firms are likely to reap the rewards of improved profits as consumer behaviour shifts towards more ethically driven purchases. Statistics compiled by Nielsen show nearly three-quarters of millennials would pay a surcharge for environmentally friendly goods and services.
- Influencing change – as more ethical projects and businesses are backed by investors; other companies will look to improve their behaviours in order to attract funding which can only be a positive for the environment and other meaningful social causes.
- Better work environments – ESG driven management can improve profits as their ethics and sense of social responsibility can mean a more engaged workforce, and in turn provide greater employee satisfaction resulting in fewer HR issues such as reputational damage and lawsuits.
Of course, there are issues to consider in ethical investing including varying management costs, whether the returns fit with your risk profile and ensuring the investments are actually ethical and not just a marketing tactic to attract more money.
Compare Your Super’s commitment to ethical investment
As a company that helps you make informed decisions about taking control of your superannuation, Compare Your Super recommends ethical investing as an important consideration of any retirement fund.
With any investment, there are no sure bet shares in the stock market, as this depends on a number of factors including management, performance and market sentiment, however there are certain industries that which can provide both growth and ethical investment opportunities that are often overlooked.
Take education, early learning and childcare for example. Growth in Australian childcare is being driven by an increasing number of services and more flexible employment options for parents. This is a key growth driver, because, as parents consistently increase workforce participation hours, they therefore require increased childcare participation hours and attendance.
Strong industry growth in this sector is expected to continue, underpinned by consolidation and a greater number of children attending childcare, with changes to government policy likely continue to stimulate demand for childcare services in coming years with bipartisan support.
This is just one ethical investment asset Compare Your Super has direct access to, and a source of return that is not directly dependent on economic performance (as is the case with most economically linked investments) and it not linked to the performance of traditional markets, such as share and bond markets.
Small changes, now and over time, to your superannuation can have a massive impact on your retirement, so don’t put off what can potentially make a huge difference to your life in later years.
At Compare Your Super, we help our clients by showing them how to invest their super in ways which are less reliant on stock markets to produce a better outcome and increase their returns.
To find out more visit www.compareyoursuper.com and book a consultation with one of our Compare Your Super – Superannuation Specialists.
- This advice is general and has not taken into account your objectives, financial situation, or needs. It is not personal advice. Consider whether this advice is right for you, having regard to your own objectives, financial situation and needs. You may need financial advice from a suitably qualified adviser. Consider the product disclosure statement (PDS) before making any financial decision. For more information, read Compare Your Super’s Financial Services Guide (FSG), and read our detailed disclosure, important notes and liability disclaimer.
- All information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall or rise.
- The information in this article is not legal advice, nor is it intended to be used as a substitute for obtaining independent professional advice. Please consult your legal practitioner, professional adviser or the relevant government or statutory authorities before making any decisions.
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