There always seems to be an assumption around the finance world that doing the right thing and making a profit do not go hand in hand. The idea is that corporate social responsibility comes a cost, mainly equating to less investors and a lower personal bank account.
In the modern era however, times may be changing where ethical investments can see higher profits that expected, and possibly even outperforming their traditional counterparts in the public market.
In an era where a lot more, people of the general public are more conscious of their morals and ethics and more considerate of other people, there has been a growth of the past decade where responsibly invested share funds can return on average 6.3 per cent a year, in comparison to a 3.8 per cent annual return for the average large cap Australian share fund.
This trend is not only exclusive to Australia however, it has also impacted many other countries and has now turned into a global trend.
According to a report produced by Deutsche Asset & Wealth Management and Hamburg University based on 2000 empirical studies, a strong correlation was found between implementing good environmental, social and governance principles and sound financial performance.
This shows investors that ethical investments can perform well, particularly over a long-term period as they factor in more risk factors than portfolios focused on short term period investments.
The current global trend around ethical investment is that a lot of companies are now paying closer attention to every companies’ hiring practices, its treatment of their employees and their social and environmental footprint on the earth. In Australia alone, nearly one in two investor dollars is spent on a responsible investment strategy. According to a survey conducted by the 2017 Responsible Investment Association Australasia, nine out of ten consumers expect their superannuation to now be invested ethically to the aforementioned values and qualities.
So, what should be considered as an ethical investment?? Traditionally, ethical investments have been considered more as products that are negatively screened for harmful issues or industry types, for example, tobacco, gambling, alcohol, etc. However, the new shift in defining ethical investments gravitates beyond the product of a company and focuses also on the operations and integrity of the company.
So how can we measure ethics?? The Responsible Investment Association Australasia actually funds managers based on how well they disclose their responsible and ethical investments. They also provide product certification for funds considered ethical or sustainable. Furthermore, research companies such as Morningstar have started providing sustainability ratings for various funds too.
This measurement of ethical credentials, however, is still in its early stages and has a huge area for investments that deliver positive social and environmental outcomes. During the past three years, ethical investments have turned over $622 billion Australian. More and more Australians want to invest in funds that align with their morals, values and ethics so they don’t have to “sell their soul to the devil. “
This partially, could be due to the upgrade in advanced technology where information can be easily accessed, shared and consumed so more and more people are becoming aware of global issues such as environmental issues, income inequality and poverty just to name a few. With the rise in awareness and spread of information, it’s no wonder the public are now demanding the finance sector to also be aware to ensure that their investments are not having an adverse impact on the planet.
One of the fastest growing aspects of ethical investments is called impact investing. This includes securities such as social benefit and green bonds, which are investments that aim to achieve measurable social or environmental goals alongside financial returns.
A research paper published by Swinburne University’s centre for Social Impact and the Responsible Investment Association Australasia has found that in just under three years, the Australian market for impact investing as increased to $6 billion Australian.
Of the fifty-one investment products they had studied, a diverse range of social benefits were measured, including 700 vulnerable families assisted, 369 employment pathways and/or jobs, 22,688 students were supported, and 950 mega litres of water were delivered to the wetlands, creeks and other ecosystems.
Conclusively, there is a definite need to pay close attention to our investments and where our monies go. An investment fuels a business which has the biggest impact on our planet, if we all invest in companies that destroy our world, we will all be doomed, however, if we all invest in companies that do good, we can make a huge positive impact on this earth.