Russell Ward Finance Writer
Ethical investing has fast become one of the hottest trends in the investment industry but can it really work for you? To answer the question, it’s key to first understand what it is, how it works, and whether it’s right for you and your family. Here’s our guide to thinking about ethical investments.
What are ethical investments?
Also known as ‘green’ or ‘responsible’ investments, ethical investments not only focus on delivering a strong financial result but also on producing a strong return in line with your ethical, environmental, moral, and social values.
Ethical investments are a personal choice when it comes to the types of companies you want to invest in that are aligned to these values and beliefs – for example, businesses that have responsible operations regarding how they treat their workers or the health outcomes of the products they produce.
Ethical investments can fall under different categories. Sustainable investments focus on protecting the environment. Socially-responsible investments are concerned with investing in businesses that practice decent social principles.
How does ethical investing work?
Investment managers follow positive and negative screening processes when assessing who to allocate their funds to – positive screening means actively seeking out companies that have a positive impact on society or the environment; negative screening excludes companies that have a negative impact.
Ethical investing means more than just a quick return – you are acting collectively with other investors to make a positive impact on the world around you by investing in organisations that encourage and follow socially-responsible, ethical practices.
That said, making ethical investments and achieving profitable returns aren’t mutually exclusive – typically, you can have one and have the other.
Ensuring that ethical investing is right for you
The first thing you need to do is your research. Consider what your ethical criteria are, as they mean different things to different people. In other words, are you an advocate of energy efficiency, pollution control, healthy eating and/or better education services?
Once you understand what these criteria are, you can assess funds or investments to ensure a good fit between the fund and your personal ethics. You should also check the credentials of the fund manager to see if they are members of the Responsible Investment Association Australasia (RIAA), which applies a standard of disclosure to its members and ensures they provide evidence of their relevant screening and selection processes.
Ultimately, the decision is yours. However, if you’re armed with a greater knowledge of the types of ethical investing, a sense of the ethical criteria that matter to you, and research around appropriate funds and fund managers, you’ll be in a strong position to start ethically investing and making a responsible financial contribution to the wider world.
Bank Australia is the first bank in Australia to have its full range of deposit and home lending products certified by the Responsible Investment Association of Australasia (RIAA) as ‘responsible’ investments.
About the author
Russell Ward is a professional business writer who has been published in The Huffington Post, The Telegraph, CEO Magazine, Global Living, Mamamia and Thought Catalog.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.