The rapid rise of the ethical investment movement means that there’s no longer such a contradiction between wanting to save the planet and investing for profit.
All around the word, investors have adopted the principles of ESG – Environmental, Social and Governance – into their decisions on where to place their money – and it’s not only delivering returns, but also shifting the dial in industries such as renewable energy.
If you want to apply these principles to your own investment decisions, you have a growing array of options. The sector has significant momentum and grew by 30% over 2020 with funds under management now at $1.28 trillion, or 40% of every professionally managed dollar.
Chances are your superannuation fund will have an ESG option, and there are any number of ETF products available on the ASX.
Local provider BetaShares, for example, has an ethical investment range which includes an Australian Sustainability Leaders ETF which invests in a portfolio of Australian companies “that meet strict sustainability and ethical standards.”
One year returns have been 23.02%, and over three years 10.68%.
If you want to put your money into a managed fund, which is not listed on the ASX but which invests in a range of listed companies on your behalf, there are plenty of options.
One good performer over the last year has been the AtlasTrend Clean Disruption Fund, which has a clean energy focus. The fund has returned 31.3% over the last year, and an incredible 61.2% over the last three.
One of the pioneers of ethical investing in Australia has been Australian Ethical Investments, which was founded in 1986 and listed itself on the ASX in the early 2000s.
As an ASX listed stock, Australian Ethical might be one to consider if you want to do your own stock picking and make your own choices. The shares have also been on the rise – a year ago they were at $4.74 and this week they are at $10.30.
Australian Ethical runs a funds business which includes ethically based super funds and retail managed funds, and the company saw record inflows of $1 billion last year and now manages around $6 billion across all of its products.
The retail offer, the Australian Ethical Australian Shares Fund, returned 19.9% over the last financial year and has put on another 5.6% since the end of June.
The managers who run these funds apply a screen across all available stocks and exclude ones they don’t rank as ethical.
Typically they will screen out coal, tobacco, gambling and companies which produce lethal weapons.
With the rise of ethical investing, there are some funds out there which have been accused of “greenwashing” – or talking up their dubious ethical credentials to jump on the bandwagon – so some research is required.
Australian Ethical, for example, applies one of the most rigorous screens which excludes around 50% of the stocks on the ASX. It doesn’t even invest in iron ore.
A list of companies which Australian Ethical does invest is available on their website, and it makes interesting reading and might give you some ideas for further research.
If you want to go down the ethical investment route and pick your own stocks, one way to approach it might be to create your own screen and apply it to the market.
You might be surprised by what options it gives you, because some of the shares which are within your ethical share universe might not necessarily be ones you immediately think of as ethical.
Stock picking website Motley Fool, for example, considers retail property group Vicinity Centres as an ethical stock because of its commitment to manage sustainability and slavery risks within its portfolio, and because of its 4 Green Star performance ratio. The shares are up nearly 30% in the last year to around $1.78.
Motley Fool also considers online job site Seek as an ethical stock, citing its support for the Flying Doctors Service and its work “guiding people through COVID-19 related employment challenges.” Seek shares have surged by 66% in the last year to $32.89 or thereabouts.
While these stocks might not scream “ethical” at you, its worth bearing in mind some recent comments from Australian Ethical fund manager Andy Gracey, who told website Citywire Australia that ethical investment was moving from the fringes to the mainstream.
“We are out to beat the market just like everyone else,” says Gracey.
“Just because we have a different lens in putting our universe together doesn’t mean we are not hungry portfolio managers trying to make as much money as we can.”
That is a philosophy you might like to apply to your own investments.