A question recently asked on the website AdviserRatings brings an issue that’s been circulating more frequently in the investment world – what exactly is ethical investing and how do I choose products that are ‘ethical’?
Darren recently addressed this question on AdviserRatings:
What constitutes an ethical investment? Is there a set of rules for something to be considered ethical? I am reasonably well off financially, but want to make sure my investments do not include coal and oil companies. How do I make sure that that is the case? Can a financial adviser help with this?
I am receiving questions like this more frequently as awareness around this issue grows, there is no universal definition of an ethical investment.
An increasing number of companies offer ethical (some call them sustainable) investments via a managed investment.
Each investment manager will have a set of rules or guidelines they will follow when constructing their investment portfolios
By way of example, Investment A defines the shares it can invest in as
“…shares in the MSCI World Index excluding Tobacco, Nuclear Weapons and Controversial Weapons”
This is an example of a sustainable investment fund, but note that it doesn’t exclude mining companies.
This fund is sometimes referred to as being ‘light green’ in that it is a little but tilted towards the green (ethical) spectrum, but only lightly.
Investment B describes its investment approach as excluding
“…carbon and other greenhouse emissions, or potential emissions, land use, biodiversity, involvement in toxic spills or releases, operational waste, water use, tobacco, child labour, alcohol, pornography, gambling, factory farming activities, manufacture of cluster munitions and landmines and manufacture and maintenance of nuclear weapon systems among other factors.”
I would describe this as ‘deep green’ investment as it has more filters than Investment A.
It screens out far more companies/industries that are likely to conflict with the ethical preferences of investors. Neither are right or wrong, they are just different.
What you may think as ethical can differ from what your neighbour views as ethical.
And so it is in the investment world.
You will find information on this in the disclosure documents (e.g. PDS or Fact Sheet) for each investment.
Lastly, I suggest you seek advice from a licensed financial adviser before making an investment (and be sure to check that the adviser has experience in ethical investing, as not all advisers do)
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Disclaimer: This publication has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions.
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