Almost 7 in 10 people want the environmental, social and governance issues of the companies their super is invested in to be considered along with maximising financial returns. In 2013 the figure was closer to 5 in 10, indicating that Australians increasingly like the idea of ethical investment1.
You may be among them, but do you understand what it is and how it works?
Ethical investing explained
In broad terms, ethical – or responsible – investing is when an investment is selected based on its financial performance as well as its position on environmental, moral, social, health, or political matters. Some examples of factors companies might be screened for include:
- Human rights abuses and worker exploitation
- Testing on animals
- Environmental pollution
- Selling harmful products such as tobacco, alcohol or weapons
- Corporate governance issues such as gender diversity at board level and transparent executive pay structures.
In response to consumer demand, a range of responsible super investments are available, from specific ethical investment options to funds that take a responsible investment approach across their entire portfolio.
In their purest form, ethical investment options, also known as dark green funds, take a highly restrictive approach, excluding any companies (and sometimes entire industries) deemed to be unethical.
Others, known as socially responsible, or light green options, don’t exclude entire industries outright, but invest in the most responsible businesses within each industry.
Why choose to invest ethically?
Aside from the possibility of a better night’s sleep knowing your money is supporting responsible businesses, opting for a responsible investment option could be your chance to help create a change in the world.
With responsible investment accounting for $633 billion – or 47% - of all assets under management in Australia at the end of 2015, the growing volumes are putting pressure on companies to alter their practices in order to attract investment2.
How to invest ethically
As everyone’s values are different, it’s important to first decide what issues are most important to you. Are there areas you wouldn’t want to see your money invested in? Or do you prefer to support the most sustainable companies in each industry?
And, as when choosing any super investment option, it's important to consider the level of risk, returns, and fees involved.
Ethical investment at AMP
If you’re an AMP customer, AMP Capital, which manages AMP’s super funds, has been focused on assessing the environmental, social and corporate governance issues of companies we invest in since 2001.
In 2007 we signed up to the United Nations-backed Principles for Responsible Investment and in March 2017, AMP Capital decided that manufacturers of tobacco, cluster munitions, landmines, biological and chemical weapons will be excluded from our portfolios.
You can find out more about our responsible investment philosophy here.
1 Responsible Investment Association Australasia, From values to riches: Charting consumer attitudes and demand for responsible investing in Australia 2017, pg. 6, figure 2.
2 Responsible Investment Association Australasia, Responsible Investment Benchmark Report 2016.
Saving for a realistic target for retirement makes it more of a molehill rather than a mountain to be climbed.