A Guide to Ethical Investing
Enhancing Your Ethical Portfolio:
Ethical investing is gaining momentum as conscious consumers seek responsible practices and positive impacts on society and the environment. Embracing this powerful approach, investors can align their financial goals with personal values, fostering a more sustainable future. This report explores ethical investing and various options for building an ethical portfolio, with a focus on public equity managed funds and ETFs.
Understanding Ethical Investing:
Ethical investing involves directing funds towards companies and projects that adhere to environmental, social, and governance (ESG) criteria. These investments support businesses fostering positive change while avoiding harmful industries. Ethical investors find purpose in their investment decisions, aligning their financial objectives with their values.
The Different Ethical Investment Options:
Socially Responsible Funds and ETFs: These investment vehicles concentrate on companies excelling in ESG practices, actively screening out controversial industries and favoring sustainability and social responsibility.
Impact Investing: Seeking measurable social or environmental impact alongside financial returns, impact investing targets projects and companies addressing specific challenges, such as clean energy and affordable housing.
Community Development Investments: Focused on supporting economic development and social progress in underserved communities, these investments encompass initiatives like affordable housing and microfinance projects.
Green Bonds: Fixed-income securities funding environmentally beneficial projects, green bonds allow investors to support sustainability while earning fixed returns.
Direct Investments in Ethical Companies: Ethical investors can directly support companies prioritizing sustainability and social responsibility by conducting thorough research into their ESG practices.
Assessing Ethical Funds and ETFs:
When considering socially responsible funds and ETFs, it's crucial to conduct a comprehensive analysis. Not all funds actively seek impactful opportunities, and some may primarily focus on excluding harmful industries without maximizing positive contributions.
For instance, the Australian Sustainability Leaders ETF by Betashares offers a convenient option for investors seeking an uncontroversial strategy. However, the fund's key holdings, as of 30 June 2023, include companies like Telstra and Suncorp, which may not necessarily be making a positive impact but merely avoiding harm.
The Intelligent Investor Ethical Share Fund is another ETF accessible through brokers. It includes companies like Auckland Airport, Telstra, and Pinnacle, an investment manager that may invest in controversial companies and projects on behalf of its clients. The strategy appears to prioritize avoiding harmful companies rather than actively seeking out impactful opportunities.
Australian Ethical, one of Australia's leading ethical investment fund managers, holds prominent positions in companies such as Westpac Bank, Bank of Queensland, Coles, and Telstra. While the fund is not directly invested in fossil fuel companies, investments in banks like Westpac, which funds fossil fuel projects, may indirectly support fossil fuels.
True to Label, Impactful Strategies:
At ELM Responsible Investments, we have full confidence in our process of identifying sustainable and impactful growth companies that offer strong expected returns. While we may hold positions in companies that spark controversy, we do so only after carefully assessing their impact on all stakeholders and considering their alignment with the United Nations Sustainable Development Goals (SDGs). It is noteworthy that some companies, despite being widely known for controversy, surprise us with their positive impact, which is often overshadowed by unfounded criticism.
We prioritise transparency and provide all our research findings to our investors, allowing them to make informed decisions aligned with their values and goals. Apart from our own strategies, we also hold admiration for other funds that genuinely uphold their ethical label. Two such funds are:
Baillie Gifford Positive Change Fund: This fund focuses on investing in companies driving positive change across various sectors, such as healthcare, renewable energy, and technology. Baillie Gifford's approach aligns with our commitment to sustainability and impact.
EInvest Better Future Fund: This fund targets companies making significant contributions to sustainability and societal progress. Their investment approach resonates with our ethos of actively seeking out companies that drive positive change.
Conclusion:
Ethical investing empowers investors to make a positive impact while achieving their financial objectives. By embracing diverse ethical investment options and creating diversified portfolios, individuals play a crucial role in shaping a more sustainable and socially responsible future. Each investment decision becomes a powerful step towards creating a better world. We hope that this report will assist you in navigating potential pitfalls and finding the right strategy that aligns with your values and goals.
This note has been prepared by ELM Responsible Investments (‘ELMRI’) ABN 70 607 177 711 AFSL 520428, for Australian wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth).
The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of ELMRI and its investment activities; its use is restricted accordingly.
This note is for general informational purposes only and does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of preparation and presenting and all forecasts, assumptions, opinions, data and other information are not warranted as to accuracy or completeness and are subject to change without notice. This is not an offer document and does not constitute an offer or invitation of investment recommendation to distribute or purchase securities, shares, units or other interests to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this note. Any potential investor should consider their own circumstances and seek professional advice.
ELMRI funds, its directors, employees, representatives and associates may have an interest in the named securities.
Past performance is for illustrative purposes only and is not indicative of future performance.