The growth of responsible and ethical investing is one of the strongest investment trends of the last two decades. Based on the Responsible Investment Association Australasia (RIAA) research, 86 percent of Australians said they expect their superannuation or other investments to be invested responsibly and ethically, and 87 percent of Australians expect the money in their bank accounts to be managed the same way.
Ethical investing means different things for different people. Some people might want to avoid investing in certain industries, for example, gambling or weapons. Some people proactively seek to support such areas as renewable energy or medical research. Advisers need to understand their client’s goals and values when they choose investments to best match their needs. Here are a few factors you need to consider when you think about whether you will invest your money in ethical investment:
- Strong investment returns
People have become aware that it is possible to invest their money in ways that align with their environmental and social ethics without compromising returns. The most sustainable companies make the best investments for the long term. Those companies who pollute the environment, breach human rights in their supply chains, and ignore community concerns, significantly damage their brand and their share prices. On the contrary, those companies who seek to do the right thing through sustainable business practices will often be more successful and profitable over the long term.
- Demand creates opportunities
More and more people are seeking investments that align with their own values and ethical standards, and expecting their money invested in a way that leaves the world a better place. In addition, government regulations and policies are increasingly focused on environmental, social, and governance issues, such as the transition to a low-carbon future. The businesses with heavy carbon emissions will be penalised through taxation and regulation, so they will become less profitable. On the contrary, new technologies encouraging the energy transition will be supported. Investors need to understand environmental, social and governance issues when they make an investment decision to maximise investment opportunities.
How to invest in responsible investment?
Finding ethical investing can be a complicated process. Lots of managed funds and superannuation claiming to be sustainable have already failed to meet people’s specific expectations and values.
Research tools: The RIAA has created its Responsible Returns tool to help investors find independently certified responsible banking, superannuation, KiwiSaver and investment options that match their value and objectives. It has two filters: the investments you want to include, and investments you want to avoid, and shows the results of a list of providers matching your criteria.
Working with a financial adviser: A financial adviser who has the experience, skills, and tools can help you find the right products to meet your needs and guide you through the journey to becoming a responsible investor.
Reference
RIAA 2021, Financial adviser guide to responsible investment, Viewed 2 Feb 2023, <https://www.responsiblereturns.com.au/>
