ETHICAL INVESTMENT ON THE RISE
In recent years, interest in ethical investment – also known as sustainable investment or socially responsible investment – has grown significantly. In fact, the 2015 Responsible Investment Australia Benchmark Report indicates that ethical investment rose 24 per cent in 2014 to $31.6 billion.
Ethical investment is a broad term, and subjective. Some investors define tobacco and gambling as unethical while having no objection to alcohol-related investment. Others are averse to investing funds in certain banks and financial institutions based on the companies to which they lend, e.g. mining conglomerates.
While it is difficult to pinpoint a universal definition of what constitutes an ethical investment, the most commonly raised concerns pertain to companies which sell products or services that:
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cause illness, disease, or death, e.g. tobacco, alcohol and gambling.
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destroy or damage the environment, e.g. coal mining, logging.
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disrespect or detain certain members of society, e.g. detention centres, companies which underpay workers.
In addition to the above forms of negative screening, many investors are actively seeking to align their portfolios with investments that contribute positively to society and the environment. Known as ‘impact investing’, this is an approach which looks for opportunities to invest in companies where there is a social, economic or environmental benefit – for example assisting business start-ups in developing nations.
In partnership with your financial adviser, it is important to identify your particular principals and ethical considerations. Based on your feedback, your adviser will then put together a portfolio of managed funds for your consideration.
As with any share-based investment, the focus is on long-term investing and sound financial management. Socially responsible investing in and of itself does not place you at greater risk of volatility or diminished returns than ‘normal’ portfolios, although your choices may sometimes be limited. There is also the undeniable possibility that you might need to forego a potentially high return from investments that don’t meet your criteria. However, with the right advice, it is absolutely possible to navigate the shifting landscape of the financial markets while still putting you in a good position to enjoy a strong rate of return.