Ethical Investing
When you enter my website AboutRetirement.com.au, you will immediately find lots of financial information about retirement.
You just cannot miss that I love working with people who are serious about taking the time to be well prepared for their retirement, whether that will happen in 3 year or in 10 years.
And I love assisting those who have already retired, to show them how with some smart tips and tweaks, just by knowing the Centrelink, superannuation or tax systems, retirement can be greatly improved and income can be maximised.
But there are other parts of financial planning I haven’t even started talking about, and today is one of those very important and close to my heart topics: Ethical and sustainable investing.
So today, I will start this new topic and over time we will discuss many issues around it and how you can make a difference and how you can align your money with your values.
“We abuse land because we regard it as a commodity belonging to us. When we see land as a commodity to which we belong, we may begin to use it with love and respect”
Aldo Leopold
When you enter my website: AboutRetirement.com.au on the home page this is what you will find:
“Our values and our principles are very important to us, and if you are anything like me, you want your investments to be aligned with your moral and ethical standards.
Most investors do not want to have any association with weapons, gambling or smoking industries, fossil fuels or slavery. Most of us prefer to support industries that help society and do not harm anyone.
We want to have a positive impact on animal welfare or climate change. We understand it is essential to save water, reduce wastage, recycle and protect our environment. We really want to make a difference and leave this world a better place for future generations.
The problem remains however, that it is very difficult to know how you can align your investments and your superannuation with your values.
How do you know that your investing supports the causes you believe in, which are close to your heart and avoid harm.
I share those principles with you 100%. I am very passionate about improving our environment, supporting industries and companies with ethical and moral principles, that present socially conscious practices and values.
But it is also essential to ensure that such portfolios are still able to provide good performance subject to existing market conditions.”
1. What is Ethical Investing and should you implement it in your investment portfolio, either within superannuation or outside of super?
Ethical and environmental investing, or Socially Responsible Investing (SRI) is a practice of selecting investments based on ethical, moral, socially conscious, and sustainable investing.
Socially Responsible Investing typically avoids investing into companies involved in gambling, alcohol, smoking or firearms. Some will avoid investing into companies with negative impact on environment, abuse of human rights or companies that promote exploitation.
2. How is Ethical Investing created? How is the decision made as to which companies to invest into and which ones to avoid altogether?
As a simple form of explanation, this is done by two types of investment screening: positive and negative screening.
- Positive Screening
Ethically driven investment funds, as the very first step of their investment selection, perform positive screening to choose companies with positive impact on environment, sustainability and are socially conscious and responsible. So in simple terms, how the activity of the company, helps the society, the world, what is the positive impact of that company economic activity and not just the cashflow, and prospect of company’s future growth.
- Negative screening
The second step is negative screening, where from the list created by positive screening, now is the time to remove companies that do not meet ethical, social or environment requirements to be included in the portfolio investment menu.
3. What are the examples of type of investing that you could consider as an ethical investor?
- Alternative energy – which is investing into renewable energy such as solar, wind, hydro or geothermal energy
- Energy efficiency – investing into electric cars, batteries, insulation, trains and rail system, which is very, very poor in Australia, but also affordable and clean energy.
- Sustainable water – investing into water supply, treatment and recycling
- Investing into pollutions prevention, waste reduction and recycling
- Affordable housing – investing into affordable housing for seniors or indigenes people
- Treatment of major diseases – investing into research and production of medicine for blood, kidney or breathing disorders or influenza
- Education – investing into companies that create digital tools for teachers, students and researchers
- Protecting our precious environment for example removal of de-forestation, supporting investments with the aim of clean oceans and river systems, supporting the native flora and fauna
- Supporting companies and foundations that create positive impact through communities to achieve Zero Hunger targets or gender equality.
After reading this, you might say, OK Katherine, I understand the issue, but how can I, just an average Aussie influence and support such causes?
You’d be surprised how much impact you can actually have.
Not only you can implement many changes in your daily life and your daily routine, you can support charities and foundations that concentrate their activities to ethical, environmental and social protection.
You cannot support them all, so chose the one that aligns with you believes and your principles. My choice is Victorian National Park Association (VNPA), who’s activity is all about protecting Victorian State and National Parks as well as all big and small native creatures and plants that live and grow there.
But, what can be even more impactful, you can start a very conscious investing through your super or other investments you have.
Start questioning your super fund. How ethical is your super? How much does your super support those environmental and socially driven causes? And I don’t mean just because a super fund names its fund “Socially Responsible” you take it for granted. No, spend some time, do a bit of a research, find out which companies your super fund invest into, what screening your super fund employs?
Outside of my life as a financial planner, I am a passionate landscape photographer and a hiker. I love nature and I love photographing it, but it is heartbreaking to see the devastation big businesses and governments have created around us in Australia and around the world, to our environment, to our State and National Parks, to the level of fires and floods we are having these days in Australia, to visible climate changes across the world.
It is terrible to see how our beautiful forests just disappear, what impact it has on the land with drying soil, incapable to hold rain waters because of lack of trees and other plats, which in turn has negative impact on native animals, river systems, which in turn allows for greater and more ferocious fires. This is like a vicious circle, and it needs to be stopped.
And this is exactly why I personally and as a business support VNPA. We even did the fund rising for this charity to support their work with dealings with the government on policy changes to protect our parks and conserving our Australian native nature.
So in my humble opinion, the least we all can do is support ethical, environmental and Socially Responsible investing. And a great starting point is your superannuation. Start asking those questions.
And the truth of a matter is that this trend will only be growing and logically thinking, if this is going to be one of the core investing in the future, shouldn’t you keep at least some of your money in it as well?
Not only your money will be supporting a good cause, but you might be earning a pretty good return out of it over time as well. So to me this is kind of win/win situation.
I hope I managed to explain the reasons why you should consider supporting ethical investing for both our future and a better future for your children, but also for the future returns of your savings. However, if you find this topic of confusion or choosing investments or an appropriate super fund is difficult, contact me directly. You can email me at hello@aboutretirement.com.au.
Retirement is a Journey not a Destination, so be well prepared for the Ride
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
