If you are like most Aussie investors, you want to know that you are investing in something that’s making a positive impact socially and ethically.
According to a study commissioned by the Responsible Investment Association Australasia (RIAA), four in five Australians feel environmental issues are important when it comes to the investment of their money.
If you are interested in ethical investing, you probably want to know the pros and cons before diving in. You may also like to consider getting ethical investment advice from a financial adviser/ethical investment advisers, to ensure that is appropriate for your particular needs and situation.
To help you decide whether or not it’s the right approach for you, here are some more details about socially responsible investing including the pros and cons and how ethical investment advisers can help you build an investment portfolio that is right for you.
What Exactly Is Ethical Investing?
Ethical investing means investing in companies that have strong Environmental, Social, and Corporate Governance (ESG) practices.
Sometimes ethical investing is also referred to as sustainable investing, green investing or impact investing.
To invest ethically is a very personal decision that may also mean you invest in areas where you are comfortable with the investment.
Some examples of ESG practices are investments that:
- Care for the environment
- Don’t use child or unsafe labour
- Producing safe products
- Promote gender equality
- Support sustainable development (ie. sustainable investing in renewable energy rather than an oil company)
- Offer equal benefits to everyone.=
What Are the Advantages of Ethical Investments?
You Get Sustainable Returns
The key advantage of ethical investing is that it creates sustainable returns for your portfolio.
When you invest in companies that are ethical and sustainable, you are helping them grow and succeed. This will help achieve a financial return and help the company stay on the right path.
Additionally, while many investors are concerned about the performance of ethical investments, data and past performance has shown that ethical and sustainable portfolios can produce strong performance (this includes ethical super funds too!)
You Could De-Risk Your Portfolio
Investment decisions always have an element of risk, but when you invest in ethical companies, you may be able to reduce the risk to your portfolio.
With the right personal advice, you can feel confident that your ethical investment solutions take into consideration:
- your risk tolerance
- past performance and predicted future performance of your investments
- your financial situation
- your ethical preferences
You Can Make Money Without Compromising Your Values
You can earn a good return without having to compromise your values by investing ethically.
Ethical investing is an excellent option for those who want to earn profits but also avoid investing in companies that do not align with their values.
What Are the Risks and Disadvantages for Ethical Investors?
You Have Limited Investment Options
Because of the relatively low number of ethical companies, and fund managers, you may find that there are limited investment options. This can make diversifying your portfolio and raising your overall returns difficult.
It can be difficult to find ethical investments but with the help of ethical investment advice and a financial planner, you can find the right investments that align with your individual investment objectives.
Not All Ethical Companies Have Equal Potential
Some ethical companies may not have the same growth potential. This is because some of them may be too small or quite new and risky, or they may not be able to offer the same amount of benefits. Also, some companies may have ethical yet unsustainable practices and operations that can affect their financial performance.
You May Have to Pay More in Fees
You may have to pay more in fees because, typically when joining ethical funds, you will have to outlay a higher amount of money. Additionally, in order to cover the costs of running these funds, companies will have to charge a higher management fee.
However, by seeking advice from a responsible Investment Adviser, you can be sure that you are gaining access to the best opportunities the ethical investment market has to offer for a low cost.
What Are the Best Ethical Funds and Options for Ethical Investment in Australia?
A good starting point is to do some research on what ethical funds are available to you locally or globally – look at company ethical practices that are important to you (such as the use of sustainable energy, environmental impact, consideration of health care and how they better our society).
There is no “one best ethical fund” for everyone as the right investments for you will be personal and unique.
As a starting point, you can check out the ethical fund ratings from the Ethical Advisers’ Co-op.
Is Ethical Investing for You?
When you decide to become an investor, you are making a choice to invest in a company that you feel is doing good in the world. It is a huge decision to make, and it may take a lot of time to decide on what you think is best. But if you have done your research when you do decide, you can be sure that it is the right decision for you.
With ethical investment, it is not only the investors who will benefit. You can also sleep easier at night knowing that you are contributing to a better world.
Of course, to get the most out of your investment, seek ethical investment advice from a reputable financial advisor. You should only engage with an authorised financial adviser who holds an Australian Financial Services Licensee and is legally authorised to give personal advice on a financial product and specific investments (including Australian ethical investments).
Novo Wealth offers ethical investment advice in Adelaide that you can benefit from.
Schedule an appointment with us today to start your ethical investment journey!