Reading Time: 6 minutes

[aioseo_breadcrumbs]

The investment universe (for beginners) – Ethical investing

Ethical Investing: When you are safely tucked up in bed and you’re not paying attention, do you really know who has their hands on your money?

No, I don’t mean thieves.

The companies you invest in leave a mark on this planet, now and into the future. If you care about the planet and whom and what lives on it, you may want to consider if your investments help or harm your world.

Do you want to invest in this?

Coal fired power stations

Tobacco

Armaments

Adult entertainment

Animal Testing

Ethical Investing

Caring about our planet is not a new thing, however, doing something meaningful has felt out of reach for many people. We can recycle or reduce the plastics and packaging we use but to make big change requires influencing the global players in the world.

How do we exert influence?

Money.

We can change the world with how we invest.

Ethical investing, also known as responsible investing or sustainable investing, is a holistic approach to investing, where social, environmental, corporate governance and ethical factors are considered alongside financial performance when making an investment.

We, the masses, are starting to influence how corporates operate. Because of the actions of people just like you, banks are considering who they lend to in fear of looking socially out of touch.

Some company wants to dig a mine somewhere and screw up the environment, the bank says, “we won’t lend you the funds to do it”. Then it doesn’t happen.

The key to making change is to impact the flow of money.

You can decide where your money flows and it’s becoming easier to make it happen.

What are the different types of ethical investments?

There are many different ways to engage in ethical investment, and investors often use a combination of strategies including: 

• ESG integration: involves the systematic and explicit inclusion of environmental, social and governance (ESG) factors into traditional financial analysis and investment decision-making by investment managers. This approach rests on the belief that these factors are a core driver of investment risk and opportunity, rather than being driven by ethical considerations. 
• Negative or exclusionary screening: screening that systematically excludes specific industries, sectors, companies, practices, countries or jurisdictions from funds that do not align with the responsible investment goals. This approach is also referred to as values-based or ethical screening, as well as divestment. Common criteria used in negative screening include gaming, alcohol, tobacco, fossil fuels, weapons, pornography and animal testing. 
• Positive screening: screening in sectors, companies or projects selected for positive ESG or sustainability performance relative to industry peers. It may also be referred to as best-in-class screening. It involves identifying companies with superior ESG performance from a variety of industries and markets.
• Norms-based screening: involves the screening of investments that do not meet minimum standards of business practice, usually based on international norms and conventions such as those defined by the United Nations (UN). In practice, norms-based screening may involve the exclusion of companies that contravene the UN Convention on Cluster Munitions, as well as positive screening based on ESG criteria developed through international bodies such as the UNGC (UN Global Compact), ILO (International Labour Organisation) and UNICEF (UN Children’s Fund).
• Corporate engagement and shareholder action: refers to the employment of shareholder power to influence a company’s behaviour. This may be conducted through direct corporate engagement such as communications with senior management or boards, filing and voting on shareholder proposals and proxy voting in alignment with comprehensive ESG guidelines.
• Sustainability-themed investing: relates to investment in themes or assets that specifically relate to sustainability themes. This commonly involves funds that invest in clean energy, green technology, sustainable agriculture and forestry, green property or water technology where the fund has the explicit objective of driving improved sustainability outcomes alongside financial returns.
• Impact investing: targeted investments made into organisations, projects or funds with the intention of generating positive, measurable social and environmental outcomes, alongside a financial return.

(Source: https://responsibleinvestment.org/fact-sheets-and-guides/)

How to start

Many industry super funds have ethical investment options which are available to you with a simple switch of investments within your account. Their websites may have a page dedicated to responsible/ESG/ethical investing which outlines their policy.

You may select all or some (by percentage or dollar value) of your retirement funds to be invested responsibly. Always check fees and performance and make a decision that is in line with your values and goals. The link below lists ethical investment options within various super funds.

Click here: https://www.finder.com.au/super-funds/ethical-super-funds

If you find that the investment option offered by your fund is not suitable due to fees, performance or philosophy, changing super funds is easier today than ever before.

But that’s your call.

If you wish to invest in managed fund or ETFs outside of the super environment, there are many options available.

The Responsible Investment Association of Australasia, under their resources tab, offer a list of accredited investments.

You can also do an internet search for “ethical investment list Australia”.

As responsible investing is still moving from fad to mainstream, investments without the RIAA accreditation may be suspect. The naming of the fund may be a marketing ploy or “greenwashing” to seek investors. If they are serious ethical investors, accreditation is important.

Always do your due diligence before making any investment.

Beware of Green-washing

There is a growing concern over the rise of green-washing by corporations which threatens to undermine genuine sustainability efforts. Green-washing refers to the deceptive practice of companies exaggerating or falsely promoting their eco-friendly initiatives to appear more environmentally responsible than they actually are. This marketing tactic aims to capitalise on the rising consumer demand for sustainable products and services, while often lacking a true commitment to sustainable practices.

Corporations engage in green-washing for various reasons, from enhancing their brand image to gaining a competitive advantage in the market. However, the consequences of green-washing can be far-reaching and detrimental. Consumers may be misled into believing they are making responsible choices, when in reality, they are supporting companies that do little to address their environmental impact. This undermines consumer trust and hinders the progress towards a genuinely sustainable future.

To combat green-washing, consumers must remain vigilant and look beyond flashy eco-friendly labels. Thoroughly researching a company’s sustainability practices, certifications, and transparency can reveal its true dedication to environmental responsibility. Additionally, governments and regulatory bodies need to establish stricter guidelines and penalties to hold companies accountable for misleading green marketing claims.

It can’t happen overnight but …

The global transition away from fossil fuels and towards renewable energy sources represents an indispensable step towards a sustainable future. While the urgency to combat climate change is pressing, it is essential to recognise that this transformation cannot occur overnight; rather, it necessitates a steady and well-structured progress. Shifting our entire energy infrastructure from fossil fuels, which have been deeply embedded in our economies for decades, to renewable alternatives demands meticulous planning, substantial investment, and comprehensive policy frameworks. Boring, but essential if you wish to have reliable light and heat (or cool) when you need it.

Embracing renewable energy technologies, such as solar, wind, hydro, and geothermal power, involves addressing various challenges, including intermittency, energy storage, and grid integration. These aspects require systematic research, development, and deployment to optimise efficiency and reliability. Additionally, energy markets and regulatory systems must evolve to accommodate renewable sources, ensuring a fair and competitive playing field for all stakeholders.

A gradual transition allows industries, communities, and economies to adapt and innovate in harmony with the changing energy landscape. It mitigates potential disruptions, fosters job creation in the renewable sector, and reduces the social and economic impacts on regions heavily reliant on fossil fuel industries.

Having said this, it remains critical for us (the general public) to keep pressure on governments and corporations to make progress at an acceptable pace. There are two ways you can vote: 1) with an actual vote to elect a government that will head in the wiser direction and, 2) with your $$$. Spend and invest your money wisely.

The Wrap

Ethical investing is a growing market for investors and investment providers. The future of our planet and the lives of our children depend on what we do now.

A tidal wave of greed has submerged our culture and left us and our future the worse for it. Of course, that is a matter of opinion. That is my opinion.

Money is a source of power. Control the money, control the outcome.

Do you and your money want the world to flourish?

Resources

RIAA: https://responsibleinvestment.org/

Up next …..

Protecting the life you have created.

Take action in your life.

Click here to subscribe and receive new posts the day they drop.

Go to the Apple App Store and play My Fortune: Race to Financial Freedom (search “my fortune race”)