Feature

Six tips for ethical investment

G Magazine

Profits and ethics aren’t mutually exclusive. Here’s how to ensure you are investing your hard-earned cash in a better future.

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>> Vote with your money

Ask anyone the meaning of the ‘value’ of their finances and it’s likely the response will be based on financial performance, not morals-based values such as preventing child labour or environmental destruction. But there’s a shifting recognition among finance circles that environmental and social assets are not only profitable, they’re in fact integral to an individual’s long-term benefit.

A 2005 report by the United Nations Environment Programme Finance Initiative noted there’s a perception in Australia that choosing ethical funds means choosing poor performers, although evidence from the performance of current ethical funds suggest this isn’t the case.

“Over the long term, statistics show that performance of the average ethical fund compares favourably to the average conventional fund,” says Marnie Baker, banking and wealth executive at Bendigo and Adelaide Bank. “In fact, during the global financial crisis, ethical funds were among the better performers and were a lot less volatile than other funds.”

Louise O’Halloran, executive director of the Responsible Investment Association Australasia (RIAA) says, “people sometimes refer to responsible investment as ‘voting with your money’”.

>> DIY or managed?

It’s possible to buy and sell shares yourself online, although it’s important to stay on top of new areas of growth in the market, something which a managed fund does for their investors. If you are using a financial adviser, Baker from Bendigo and Adelaide Bank says, “Check what ethical or environmental criteria the bank or fund uses when choosing their investments. This information should be able to be found in the product disclosure statement or on their website”. For a list of investment companies that are members of the RIAA, visit www.responsibleinvestment.org.

>> Choose your friends wisely

Be aware that most of the ‘responsible’ superannuation and ordinary investment funds in Australia still invest in uranium mining or gambling. “There’s ethical and then there’s ethical,” says business writer Leon Gettler. For example, many funds invest in Macquarie Bank, which is linked to gambling through Tattersalls. “Some so-called ethical investors still invest in BHP or Rio Tinto, which are actively involved in destructive uranium mining. Also, not many people know that Woolworths invests in gambling.”

Gettler recommends people ask for a list of companies where money will be invested before handing over any cash. “Double-checking is up to the individual investor. So, take an active role; it’s not enough to leave someone else to look after your money, and it’s your right to check as it’s your money,” says Gettler. “And if you don’t like what you find, pull your money out and invest it somewhere else.”

It’s also important to choose wholly ethical companies. Even if you opt for an eco-portfolio or ethical package within a wholly unethical corporation, your money will still be directed into industries with unethical practices such as deforestation, water contamination, ruining of local economies, sweatshops and weapons
or cigarette manufacturing.

To find out which companies on your investment list are sustainable, visit the Dow Jones Sustainability Indexes (DJSI, www.sustainability-index.com) and The Australian SAM Sustainability Index (AuSSi, www.transcap.com.au).

>> Green your super fund

In Australia, because it’s compulsory to put money into our superannuation accounts, there’s a huge potential for people to choose to put this money somewhere ethical. “Right now everybody has super, whereas people are holding back on making investments because those markets have been a bit up and down,” says Paul Smith from Australian Ethical (www.australianethical.com.au).

Australia’s super funds combined add up to more than a trillion dollars (90 per cent of our GDP, compared with 20 per cent in Japan), but the sad truth is that, at the moment, most of that money is invested in companies involved in old-growth forestry logging, uranium mining and products that cause greenhouse gas pollution. State governments’ super funds alone invest hundreds of millions of dollars of their employees’ super in gambling, cigarette and oil companies.

In contrast, Australian Ethical refuses to support such practices. “We’re quite deeply involved and exclude a lot of sectors and businesses,” says Smith. “We invest 100 per cent in companies that are positively impacting society and the environment.”

>> Invest for impact

It’s worth asking management funds if they do ‘impact investing’, which means putting money where it will make the most impact for society; for example microfinance or improving social governance issues in developing countries. Best of all, it’s not a high-risk investment and it can still be quite profitable. Some funds that do this are Christian Super (www.christiansuper.com.au), Ethinvest (www.ethinvest.com.au) and Australian Ethical.

>> Let out your inner philanthropist

Why not ‘gift’ your money to a not-for-profit organisation overseas, then get your money back tax-free knowing it’s been put to good use? Investors can make microloans to business owners in developing countries through organisations such as Energy in Common (www.energyincommon.org), which provides funds for fair access to renewable energy technology. So far, 98 per cent of loans made through their website have been repaid.

OUR SUGGESTIONS:
Green:

Bendigo Bank was named Business Bank of the Year 2011 for customer satisfaction.

Greener:

Credit unions such as Community First (www.communityfirst.com.au) in general have more focus on society than on business.

Greenest:

Try DIY, or our favourite truly ethical asset manager: Australian Ethical. Christian Super and Hunter Hall
(www.hunterhall.com.au) are good as well.