Ethical Investing

What is ethical investing?

Ethical investing is when clients choose to extend their personal values, beliefs and philosophies into their investment portfolios.

Clients choose to invest in such a way so that they are supporting businesses and industries which are working for the good of the planet and society in general.

There are three main strands to ethical investing:

#1  Environmentally responsible

This involves investing in companies that do not harm the environment.

A negative screening approach would remove investment in fossil fuels, companies that produce toxic waste and high levels of pollution, or that generally damage the environment with their products or the way that they conduct their business.

A positive screening approach would include companies that manufacture products that have a smaller carbon footprint than other products in their sector (such as “green” buildings), companies that make products that are less harmful to the environment than their competitors (i.e. eco cleaning and household products), and companies that use sustainable approaches to the use of the environment (ie, sustainable forestry and renewable energy).

#2  Socially responsible

This is investing in such a way that takes into consideration the “social good” of the investment.

A negative screening approach removes investment in industries like gambling, alcohol manufacture, weapons manufacture and tobacco.

A positive screening approach would specifically include companies that offer good employment conditions, that work to improve general standards of living in their community and offer products and services that contribute to the improvement of society.

#3  Good corporate governance

This takes into consideration how companies manage themselves and their relationships with shareholders and employees.

Good corporate governance focuses on the values and ethics of the business, and the way that they conduct themselves as a corporate citizen. It considers their accounting practices, their compliance and reporting, their remuneration programmes, and their political involvement.

How this works from a practical perspective:

All investments that can be accessed by New Zealand investors have to offer a prospectus/investment statement which registered for use in New Zealand and compliant with NZ legislation.

There are several Australian based funds available to investors that use negative and positive screening for the three strands of ethical investment.

There are also a few NZ based funds that also meet most of the ethical investing criteria as well.

BEWARE – NOT ALL ETHICALLY BRANDED FUNDS ARE CREATED EQUAL!

With the exception of environmentally ethical funds, there is no generically recognised standard for ethical funds.

Any fund can brand itself as ethical but in reality, it may just be paying lip service to the principles.

It takes a lot of research to dig down into an investment to see what screening they use and where they are choosing to place investors’ money.

Similarly, there are funds that do not brand themselves as ethical, but the reality is that they apply the principles and screening and hold appropriate investments to meet ethical investing criteria.

We now have the research available to put together portfolios that are almost entirely ethical in nature, and we will continue to stay alert and look for new investments that we can use in this space.