Ethical, responsible investing doesn’t mean lower returns. These experts explain how it works
If you’re looking into investing your money more ethically, you’re in good company.
A growing number of Australians are trying to align their values and their investments — from who they bank with, to the shares they buy, and which super fund they use.
Today, 88 per cent of us (up from 83 per cent in 2002) want and expect our money to be invested ethically, according to Responsible Investment Association of Australasia (RIAA) research, which published the results of its survey of more than 2000 Australians this year.
That’s a very significant chunk of investors who hold significant power, Estelle Parker, co-CEO of RIAA, tells ABC RN’s Life Matters.
“They’re realising that investments can make a huge collective impact on the world. Money can actually be a force for good, for a better future, for their children’s future,” Parker says.
But this isn’t philanthropy. Ethical investments perform comparably to or better than the rest of the market, in the medium to longer term, Parker says.
“People are doing it because they want to align with their personal values and ethics … but they’re also doing it because the returns are pretty good.
“Slowly people are starting to realise that you do not have to sacrifice returns to do this.”
What is ethical or responsible investment?
Responsible investment accounts for 36 per cent of the investment market, or $1.3 trillion, in Australia.
And responsible or ethical investing has evolved from what it once was.
“It’s gone from beyond blunt exclusions, where you’re saying I want to screen out certain companies or industries like fossil fuels, to actually investing for positive change,” Parker says.
She says there’s been a huge growth in “somatic investing” — that is, investments that support sustainability to create a positive impact.
“That’s sitting now at $235 billion [of the market]. Much of that’s in renewables, in energy efficiency, and so on.”
But increasingly other investment priorities include a company’s position on human rights, biodiversity, sustainable water management, animal rights, gender equality, energy efficiency or waste, or even their leaders’ wages.
There’s also impact investing, which Parker says “is growing off a very small base”, and now accounts for about $60 billion in Australia. That involves people investing in things like health care or social housing, with the intention to create positive, measurable outcomes.
The values driving investors
The main investments for most Australians are their home and their super funds (which invest in companies on their members’ behalf).
But 51 per cent of Australians — or 10.2 million people — also hold additional investments, including in shares and ETFs (exchange-traded fund, which is a type of investment fund). Family trusts and higher net worth investments are other types.
Parker says younger people, in particular, are interested in ethical investing. Those who view it most positively are in the 25- to 39-year age bracket.
“Most of those [surveyed in that age bracket] say that they would consider moving their super fund or their bank if they found out that [the institutions weren’t] invested in line with their ethics,” she says.
But it’s not just young people; interest is growing across the board.
Seventy-six per cent of those surveyed want their fund to make a commitment to net zero carbon emissions by 2050 — “and that’s not just the younger generation”, Parker says.
“We’re also seeing 89 per cent wanting their bank and super to avoid human rights abuses in their investments [and] 74 per cent are really concerned about animal cruelty, which is a really interesting one.”
Should I be worried about greenwashing?
Greenwashing, the term used to describe companies who pretend to be more ethical or environmentally sustainable than they actually are, is a real concern, Parker says.
And it should be on your radar if you’re looking to invest ethically. It’s certainly on the government’s radar.
“The regulators are looking at this very closely at the moment,” Parker says.
“So ASIC [the Australian Securities and Investments Commission] has taken actions against a number of organisations that it regulates, which includes [investigating] some of the big [super] fund managers.
“And the ACCC [Australian Consumer and Competition Commission] has also been taking action, too.”
In March 2023 the ACCC published research into the extent of greenwashing in Australia. It found that more than half of the 247 business websites it observed had made “concerning”, “vague” and “unsubstantiated” claims about environmental credentials.
Isn’t it enough to use the ethical super option?
Jai Mirchandani manages an ethical investment fund certified by the RIAA.
His clients range from younger investors to those wanting to invest in positive change in areas like health care and renewable energy — and generate strong returns — for their kids and their grandkids.
He says choosing the ethical option within your super fund is “one way of getting more capital to ethical companies”.
But, he adds, “we’re seeing a lot of greenwashing cases put against the traditional investment funds for misleading the public on what they’re actually invested in”.
“So I think it is important to have dedicated ethical or sustainable investment firms out there, investing in a truly authentic way.”
Where to find out more
Companies like Mirchandani’s — which require an investor to begin with a minimum amount — aren’t for everyone.
“We can only deal with wholesale and sophisticated investors,” he says.
“There are other exchange-traded funds where you can get started on a much smaller balance. But with that also comes other issues or other considerations, such as authenticity, for example.
“So the best thing to do would be to speak to your financial advisor about what the different options are and what the best option is for your own personal circumstances.”
Parker also recommends speaking to a financial advisor about your values and investment expectations, and how much risk you can absorb.
“But also do your own due diligence; look under the hood … The information should be available on the website of your fund [for example] … Does it align with your values? How are they voting at AGMs? Are they using active corporate engagement?
“If [the information isn’t there], email your fund and just call for a bit more transparency.
“You can swap your superannuation into an ethical fund, it’s not that hard to do.
“It does take some time if you want to do the due diligence and really have a look closely at the funds. But it can be done.”
The RIAA’s Responsible Returns free online tool is designed to help match a product to your values.
And the government’s Moneysmart website has links to free financial information, including on investment in general, as well as choosing investments that match your values.
Advice in this article is general only. Please see a professional for advice on your individual financial circumstances.
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