Ethical Investing

Sydney Financial Planners

Issues such as climate change, uranium mining, child labour, and human rights are all contentious issues however many of us feel powerless to make a difference.  One way you may not have considered is through Sustainable Responsible Investment (SRI).

SRI is a type of investing which considers social and environmental factors as well as financial factors in investment decision making.  You might also see it referred to as “green investing” or “responsible investing”.  The idea is that by investing in companies and funds that are more socially responsible, that you can make a positive contribution to world issues such as global warming whilst at the same time receiving financial gains through investing.

SRIs were initially developed in response to the need for people of Jewish, Christian and Islamic faiths to avoid investments which contravened their religious beliefs.  Since that time however, there has been a greater consumer demand for more environmental and socially conscious businesses.  In the 2006 financial year alone,
SRI-managed portfolios increased by 56% in Australia*.

What types of things are considered Ethical Investments?

Here are some examples of some investments which may be considered as SRI friendly:

  • wind farming and renewable energies
  • health care
  • waste management
  • organic foods

Examples of some ethical investing no nos are:

  • gambling
  • mining and resources
  • armaments

Does investing ethically mean that I will get lower returns?

Many people associate more socially responsible investing with lower investment returns.  But is this necessarily the case?  The research over the past few years indicates that yes, mainstream funds do perform better than SRIs on average, but not by much.  The explanation for this slight underperformance is likely to be due to the fact that ethical funds are less likely to invest in the resources sector which continues to perform well in Australia.

Are all “ethical” investments as ethical as each other?

Without a set standard in Australia it is difficult to compare investments at face value.  It is important that you read the Product Disclosure Statement (PDS) carefully to ensure that the companies and sectors that are being invested in are aligned with your own ethical values.

Could Socially Responsible Investments be right for you?

The choice to invest in socially responsible investment funds needs to be considered in relation to your own ethical values as well as your portfolio and financial planning goals for the future.  Remember that SRIs may not perform quite as well as more traditional investments—you should consider this in your decision making.

If you’re passionate about investing to Sustainable Responsible Investments, be sure to discuss this with a Financial Spectrum financial adviser who can help assess whether these types of investments might be a right fit for your situation.

About Financial Spectrum – Sydney Financial Planners

Financial Spectrum are a team of independently owned financial planners who specialise in fee based financial planning advice in Sydney, Australia.  We’re also proud to be Principal Members of the FPA – the Financial Planning Association of Australia.  For more information about our financial planning services, contact us to arrange your free first financial planning meeting.