In the past, most Australians didn’t think about what their money was doing. Well, beyond making them more money, that is.
However, in recent years a surge in community interest in social causes. From labour conditions to medical innovation to climate change – has created a seismic shift in the investment scene.
In fact, nearly half of investments in Australia in recent times have been made ethically, with consumer demand the major driver.
So, what exactly is an ethical investment?
Any investment where an individual or company has chosen to invest in line with their values can be said to be called ethical.
In formal terms, this refers to a process which takes environmental, social, and governance (ESG) issues into account when researching, analysing, and selecting investments.
However, from this point the definition becomes blurry, as these ESG values vary from person to person.
For example, you might have a moral issue financing a company that is involved in the destruction of old-growth forests. However, you may have no qualms in supporting a company which manufactures alcohol.
Similarly, your neighbour might not care about the environment. But they may have issues with companies that penalise workers for being involved in unions, and so on.
What’s important is your investment factors in these values and your money supports companies and activities you like, not dislike.
Types of ethical investments
According to the Responsible Investment Association Australasia (RIAA), there are five major processes you can use to make your investment ethical:
- Sustainability themed investing: Investments in assets specifically related to sustainability factors, such as green energy or water technologies.
- Screened investing: Investments which exclude low ESG sectors, companies or projects, such as gaming, weapons, tobacco or fossil fuels. Instead, they should include high ESG sectors, companies or projects, such as green energy and medical research into your portfolio.
- Impact and community investing: Investments aimed at solving social or environmental problems whilst delivering financial returns.
- Corporate advocacy and shareholder action: Investments which engage shareholders to influence corporate behaviour.
- Integration of ESG Factors: Involves the systematic and explicit inclusion of ESG factors into traditional financial analysis and investment decision making.
Final word
While there are a lot of companies out there selling their ethical investment wares, it pays to do your research.
The RIAA website is a good place to start for more details on the basics.
Or, you can come speak with us to get the lowdown on your options. We’ll guide you on how to make your investments best work for you, your family, and the world you wish to see.
