Responsible and ethical investing
If you’d like your money to make a difference to the world as well as to your future, ethical investing may be for you.
Almost nine in 10 (89 per cent) Australians would prefer to invest in a responsible investment option that considers ethical, social and governance (ESG) issues as well as financial returns.
With responsible investments now accounting for $980 billion – or 44 per cent – of total assets professionally managed in Australia at the end of 2018, this preference is expected to continue increasing in years to come.
What is responsible investing?
Responsible investing takes into account environmental, social, governance and ethical issues, as well as financial performance, when selecting investments.
Funds that apply a responsible investing approach may screen out companies or sectors due to controversial or unethical business practices or negative social impact.
This may include companies with a history of human rights abuses and worker exploitation, those that participate in animal testing, or those that sell harmful products including munitions and tobacco. This practice is known as negative screening.
Funds may also positively screen for companies or sectors with a stronger focus on sustainable practices relative to their peers.
Levels of responsible investing
Increasingly, fund managers are using a combination of responsible investing techniques, creating a range of options for customers seeking to align their own values with their investment risk profile.
In their purest form, ethical investment options, also known as dark green funds, take a highly restrictive approach, excluding any companies (and sometimes entire industries) deemed to be unethical.
Others, known as socially responsible, light green or sustainable options, don’t exclude entire industries outright, but invest in the most responsible businesses within each industry.
Whereas ESG and socially responsible investing looks to exclude investments based on negative or harmful activities, impact investing proactively seeks out businesses and funds to invest in that address environmental and social issues, for example, renewable energy companies.
Through impact investing, capital is provided to companies in the form of your investment, with the intention of generating a measurable, beneficial social or environmental impact, as well as a financial return.
How it can affect returns
A common concern surrounding responsible investing is that incorporating ESG factors into the investment process, or screening out certain companies, may compromise investment performance.
However, recent research shows that assets under management using a responsible investment approach are outperforming mainstream funds over most time frames and asset classes.
It’s important to note though that many of these investment options are still relatively new and most haven’t been around longer than 10 years. This means their long-term performance is unknown at this stage.
Why choose to invest responsibly?
Aside from the possibility of a better night’s sleep knowing your money is supporting more responsible business practices, opting for a responsible investment option could be your chance to contribute to positive change in the world.
Australians are choosing to invest responsibly for a variety of reasons. These span from a desire to help the environment or to support a cause you’re particularly passionate about, to engaging and holding companies accountable for their actions, or simply ‘putting your money where your mouth is’.
How to check your investments
If you’re considering making the change to more responsible investment options, or if you’re keen to see how your current investments stack up, here are some steps you can take to get started:
For further information about responsible and ethical investing please contact us.
“I have been with Capstone for over three years and have found them refreshing to deal with. They help you become the best version of your business. I can wholeheartedly commend Capstone to any planner.”
Bronson Financial Services
“At a time of industry upheaval, the support of Capstone has been a godsend. Everything they promised they delivered.If you are looking for a new licensee you cannot beat the Capstone service offering."
Canyon Financial Planning
“Capstone Financial Planning should be at the top of your list for a Licensee. Grant and his amazing team give a down to earth and personalised approach to supporting practices.”
“Capstone have some of the highest quality individuals in their team and it’s a pleasure to benefit from their insight and assistance. We really can’t recommend them enough to anyone considering a licensee.”
Strategic Retirement Solutions
“I recommend Capstone to any adviser seeking to 'go out on their own'. They are a fabulous licensee!”
Everalls Wealth Management
“With Capstone I can operate my business free from conflict. They have no in-house products, a flexible APL, and an extensive list of SMA solutions. I recommend Capstone highly.”
“I can highly recommend Capstone for planners seeking an independent licensee that’s not in your face but provide quality support services. Their service and support is second to none and has allowed us to concentrate on providing our clients with a premium level of service.”
“Having been with Capstone for a number of years, one thing that really stands out is their willingness to help and can do attitude. These are qualities we really appreciate.”
“The team at Capstone are all genuinely really good people. They are remarkable with their service culture. They really do care what you think, and they are genuine about our joint success into the longer term.”
Benchmark Financial Planning
“During times of change, it has been reassuring to be with a licensee that regularly engages with advisers and takes feedback seriously.”