Many of us hold strong views about social and environmental sustainability. If that sounds like you, it’s possible to tailor your portfolio to reflect your values - and it doesn’t have to mean putting up with low returns. A new report shows ethical investing can be good for your hip pocket as well as the planet.
‘Responsible’ investing is all about putting your money into sustainable assets and enterprises as a way of supporting a healthier economy, society and environment. It may mean investing in alternate energies for example, while shunning industries that can harm people or the environment like weapons, tobacco and gambling.
This style of investing is heating up faster than global warming. Responsible investment represents around half of all professionally managed assets in Australia, and chances are this figure could climb higher.
Some investors may be concerned that taking an ethical approach could mean sacrificing decent returns. However, a new report by the Responsible Investment Association Australasia has put this view to the bullet (not that they’re pro guns).
The study found that managed Australian share funds following a responsible investment strategy notched up average annual returns of 13.0% over the past five years. That’s well above the 11.6% average return recorded by the S&P ASX 300 Accumulation Index. It’s a similar story over the past 10 years, with responsible Aussie share funds recording average returns of 6.3% annually compared to 4.4% across the broader market.
Clearly, doing the right thing by the planet can also be good for your wealth.
If you’re keen to match investments with personal ethics, one option is to invest directly in companies you believe are making a positive contribution to the environment and sustainability.
A potentially easier alternative is to invest in a managed fund with socially responsible or ethical investment options. There’s no shortage to choose from with 77 Australian asset fund managers having signed up to the United Nations Principles for Responsible Investment.
You can even extend ethical investing to your retirement nest egg. Among Australia’s top 50 super funds, 70% have some level of commitment to responsible investing.
If responsible investing is something you’re interested in, be sure to check the principles underpinning the fund to make sure they are in line with your own views.
And while investing responsibly may add the feel-good factor to your portfolio don’t overlook the basics. Check the fund fees – those that apply on a regular basis plus any fees charged if you bail out of the fund. Regardless of the fund’s approach to investing, it may not offer a sustainable means of wealth creation if you’re being slugged with over the top fees.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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