Climate change, overpopulation, pollution, and deforestation – these are just a few of the many challenges we’re currently facing as a planet. While our consumption choices can help make a difference, ethical investing offers a win-win option for the planet as well as your finances. With responsible investing consistently outperforming multi sector and mainstream managed funds, growing numbers of people are already looking to ethical options to support sustainability and build their wealth.
1. Ethical super funds
Switching to an ethical super fund is one of the easiest ways to make a positive impact with your retirement funds. An ethical super fund invests your super responsibly, by avoiding polluting and high-carbon sectors such as coal, coal seam gas, and oil. It might also rule out investments in industries with controversial or unethical practices, such as weapons industries, logging, tobacco, and other harmful products.
Ethical super funds typically concentrate on sectors such as clean energy, sustainable products, healthcare, responsible banking, education, and innovative technology. By directing your super into these sectors, you’re not only doing your part in saving the planet but also avoiding contributing to unethical practices or industries.
For example, an additional $50,000 invested in an ethical super fund such as Australian Ethical, saves a staggering 258 kg of carbon emissions from being released into the atmosphere each month, which equates to 77.5 tonnes of carbon by the time you retire.
2. Green technology
Concentrating on investments in green technology and green innovations is another way to invest responsibly whilst assisting the environment. In fact, clean energy funds are becoming increasingly popular amongst high-net-worth millennials who are looking for ways to invest sustainably and impactfully.
You could invest through the Australian Stock Exchange or in other types of renewable investments such as solar projects or renewable energy bonds. Alternatively, if you have time to do the research and conduct due diligence, you could invest directly in renewable energy companies and other green technology companies that solve specific environmental problems.
Bill Gates, for example, has invested billions of dollars in battery storage, solar-chemical power, high-wind power, and free air carbon capture companies. While most of us don’t have billions to invest, those who are savvy enough to find the next big green tech company could play a part in saving the planet whilst securing their financial future at the same time.
3. Socially responsible funds
Socially responsible funds choose their investments based on criteria such as labour practices and environmental standards, as well as avoiding certain sectors such as coal and oil. There’s some overlap between socially responsible funds and ethical and green technology approaches. However, socially responsible investing could be thought of as being broader than the green-tech approach and slightly different in focus than the ethical investing approach.
A socially responsible fund might choose companies that have a positive social and environmental impact, and so environmentally friendly approaches could fall under this criteria in the sense that these companies benefit society and the future of the planet. By choosing a socially responsible fund for your investments, you’re likely to be doing your part for Earth by avoiding companies that have poor environmental practices.
4. Ethical managed fund
You can also invest in an ethical managed fund as you do with an ethical super fund. Funds such as Australian Ethical offer managed funds that cover investments in shares, property, fixed interest, cash, and more. Managed funds are flexible in that you can start with a very small investment while staying confident that your investment is diversified and being looked after by experts.
Like an ethical super fund, your money will go into ethical sectors and businesses only, which might include environmentally friendly sectors, renewable energy businesses, and other green investments. The fund might screen out businesses that don’t use ethical labour practices, polluting industries, arms products, and harmful products. Ethical can be a broad term, so the only way to make sure your chosen fund is helping out the planet is to check their charter and ask about their criteria.
5. Sustainable funds
Sustainable funds focus on businesses that focus on achieving market-rate returns at the same time as positive social and/or environmental impacts. Fund managers who consider investing in a company will conduct environmental, social and governance risk management (ESG), by looking at how the company is run and how it manages the social and environmental impacts of its activities.
Popular sectors for sustainable investing include clean energy, health and wellbeing, goods and services for ageing populations, and waste management. Research shows that companies that value ESG tend to have better returns, so investing in sustainable funds could be another way to help out the planet while seeing your nest egg grow.
There’s a good deal of overlap between funds that focus on ethical, socially responsible, sustainable and green businesses investing, due to their being no official definitions for these terms. When choosing an ethical investment fund you should therefore conduct a considerable amount of research so you can be sure you know exactly where your money is going.
As awareness around ethical investing has grown, some great ethical investing vehicles have become available, and investors can expect many of these funds to outperform mainstream funds. You can take advantage of these options through your super, managed funds, or through direct investments and investing in stocks. By switching your investments to an ethical option you not only contribute to saving the planet, but you may also find you maximise your financial returns as well!
Jasper is passionate about finance, investment, crowdfunding and Cosmo Kramer. You can follow him on Twitter.