By Adam Kirkman | 28 Nov 2018
If you’d like your money to make a difference to the world as well as to your future, ethical investing may be for you. Learn about ESG considerations and the options available to you.
Almost 7 in 10 Australians would prefer to invest in a responsible investment option that considers ethical, social and governance issues as well as financial returns1.
With responsible investments now accounting for $866 billion – or 55.5% – of total assets professionally managed in Australia at the end of 2017, this preference is expected to continue increasing in years to come2.
What is responsible investing?
Responsible investing takes into account environmental, social, governance (ESG) and ethical issues, as well as financial performance, when selecting investments.
Funds which apply a responsible investing approach may screen out companies or sectors due to controversial or unethical business practices or negative social impact. This may include companies which have a history of human rights abuses and worker exploitation, those that participate in animal testing, or those which sell harmful products including munitions and tobacco. This practice is known as negative screening. Funds may also positively screen for companies or sectors with a stronger focus on sustainable practices relative to their peers.
Levels of responsible investing
Increasingly fund managers are using a combination of responsible investing techniques, creating a range of options for customers seeking to align their own values with their investment risk profile.
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, light green or sustainable options, don’t exclude entire industries outright, but invest in the most responsible businesses within each industry.
Whereas ESG and socially responsible investing looks to exclude investments based on negative or harmful activities, impact investing proactively seeks out businesses and funds to invest in which address environmental and social issues, for example, renewable energy companies.
Through impact investing, capital is provided to companies, in the form of your investment, with the intention of generating a measurable, beneficial social or environmental impact, as well as a financial return.
How it impacts returns?
A common concern surrounding responsible investing is that incorporating ESG factors into the investment process or screening out certain companies, may compromise investment performance. However, recent research shows that assets under management using a responsible investment approach are increasingly delivering comparable, or in some cases, above- benchmark returns3.
It’s important to note though that many of these investment options are still relatively new and most haven’t been around longer than 10 years. This means their long-term performance is unknown at this stage.
Why choose to invest responsibly?
Aside from the possibility of a better night’s sleep knowing your money is supporting more responsible business practices, opting for a responsible investment option could be your chance to contribute to positive change in the world.
Australians are choosing to invest responsibly for a variety of reasons. These span from a desire to help the environment or to support a cause you’re particularly passionate about, to engaging and holding companies accountable for their actions, or simply ‘putting your money where your mouth is’4.
How to check your investments
If you’re considering making the change to more responsible investment options, or if you’re keen to see how your current investments stack up, here are some steps you can take to get started:
1. Think about what ethics and values are important to you – everyone’s values are different so to begin with, you need to work out what’s most important to you. From here you can identify the areas you don’t want to see your money invested in, or perhaps investment products where you could put your money to make a positive impact.
2. Ask where your money is currently invested – many super funds or investment managers now have information about sustainability and ESG on their websites. This is a good place to start to find out how your money is being invested.
3. Do your research – there are now many responsible and ethical super funds, investment products and fund managers you can access. AMP Capital is one of these and all funds it offers operate according to ESG principles.
4. Ask for help – if you need assistance finding out what you’re invested in or how to access more ethical investment options, ask your financial adviser.
Responsible investing with AMP
AMP Capital is responsible for managing the underlying assets in AMP’s superannuation products and publishes information on its website about its responsible and ethical investing practices, ESG investment insights, and responsible investment product offerings.
1Responsible Investment Association Australasia, From values to riches: Charting consumer attitudes and demand for responsible investing in Australia 2017, pg. 6, figure 2.
2Responsible Investment Association Australasia, Responsible Investment Benchmark Report 2018, pg. 12
3Responsible Investment Association Australasia, Responsible Investment Benchmark Report 2018, pg. 5 paragraph 9
4Responsible Investment Association Australasia, Responsible Investment Benchmark Report 2018, pg. 18 paragraph
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