Smart investment strategies focus on building wealth over time. But for an increasing number of Australians, taking a more mindful approach to investing is also important. So, what do you need to know about ethical investing?
If you’re interested in genuinely ethical investing, it all begins with important questions you can start asking your superannuation fund, your bank, and your insurance companies. You need to find out how green your money really is in their hands.
What is ethical investing?
At its heart, ethical investing is about ensuring your money creates savings/investment outcomes that align with your values and beliefs.
That could include your views on mining, child labour, fast fashion, green energy, climate change, rubbish reduction, eliminating food waste and more.
Negative screening
Negative screening is about exploring investment options and electing to actively avoid investments in companies or sectors because you don’t want to support the products or practices involved.
You can also factor in your views on the environment, social issues that matter to you and humanitarian or animal rights issues.
Positive screening
Once you’ve eliminated a bunch of investment options using negative screening, you can refine further by applying the positive screening filter. Positive screening is about deciding to allocate your money in areas that you feel do good – as well as (hopefully) deliver good returns. You might choose renewable energy investment, healthcare innovation or a sort of social enterprise.
Advocacy
If you are serious about ethical investment, exploring advocacy takes it to another level. This involves engaging with companies that a fund manager already invests in or wants to invest in – and then taking action that encourages better behaviour. Suggested changes could see a company become more ethical and sustainable.
Research carefully
Ethical investment has become a marketing tool for some businesses that don’t necessarily deliver the greenest possible returns on their promises.
Look for financial advisers who specialise in helping people make more informed decisions about ethical investment – but do your research to make sure they are the real deal.
Make sustainable choices
A simple google search can reveal articles that point to the good and bad things companies do – and it’s a handy way to see if companies really are ethical.
Also take a look at the Dow Jones Sustainability Australia (DJSA) Index.
It’s reviewed annually and represents the top 30 per cent of companies in the S&P/ASX200, based on long-term environmental, economic and social criteria.
It also analyses climate change strategies, corporate governance, energy consumption, human resources development and stakeholder relations.
Read the fine print
Green promises may not stack up in the fine print, so always read the documents and look for green accreditation and standards of sustainability with APRA, UNEP, or the TCFD.
Is ethical investment important to you? Have you changed banks, insurance providers or superannuation funds in search of ethical investment? What are you happy to invest in? Share your stories in the comments section below.
Read more: What are the risks of switching your super fund?
