Does “ethical investing” really make a difference?

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Katrina Shanks is the Managing Director of Financial Advice New Zealand.

OPINION: When New Zealand signed a climate change cooperation agreement with California, it opened up opportunities for sharing information, experiences and research on reducing emissions as well as collaborating on projects. which are good for the climate.

The State of California alone is the fifth largest economy in the world (above the United Kingdom and just behind Germany), so any joint project has real potential. The agreement provides a framework for cooperation in a range of sectors, including zero-emission vehicles, energy storage and smart grids, emissions trading systems and climate-smart agriculture. climate.

Our government has said it will unlock new opportunities for business and unleash the potential for innovation and collaboration in the private sector.

To do that, they’ll be looking for investors, and that’s when they’ll push the value of the work they do – their ethical credentials – to encourage people who want to invest their money in something that will do good for the planet.

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This is already happening across a wide range of companies and offered by a range of platforms and funds, and is attracting a growing number of investors who want to buy shares in companies “doing the right thing” for the planet.

It’s called ethical investing, but it’s not limited to the environment. These may be businesses that practice or promote strong social and community values, trade in animal products, or manufacture assault rifles.

So, does ethical investing make a difference, is there money to be made from it, and how do you avoid falling victim to so-called “greenwashing”?

Some investments are considered more ethical than others.

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Some investments are considered more ethical than others.

For starters, there is no single definition of ethical investing. It’s just your preferences and what you’re comfortable with.

Of course, some investments are considered more ethical than others. For example, those working in renewable energy or recycling versus those drilling for fossil fuels.

Among you, you might like a company because it employs a lot of people from ethnic minorities, or women, compared to those who don’t.

What is ethical for you may not be for someone else.

What is ethical, what is not

Ethical claims are not like organic claims, where companies or funds have to go through a process to prove that what they do is what they claim.

Those who make “ethical” claims do not have to prove what they claim.

Investors often have to guess at things because companies may not disclose everything they do or where they get their products from.

Find ethical businesses

There are several ways to verify a company and its claims.

You can do a Google search on the name of this company to find a news article about it.

Or you can view its annual report on its website. Often this will reveal a lot.

You can also visit the Responsible Investment Association of Australasia (RIAA) website, which has an online tool to help investors find funds that match their own ethical goals and values. It’s quick and easy and contains a wealth of information.

If you are investing through an exchange-traded fund (ETF) to buy bonds or stocks of companies, the manager of that fund should be able to answer any questions about the companies they invest in and their ethical values.

You can also look into setting up funds that are deemed to be ethically conscious. For example, Vanguard has an Ethically Conscious International Share Index Fund which includes over 1600 stocks. Some stocks included in the fund are Apple, Microsoft, Amazon, Tesla, Alphabet, UnitedHealth, Facebook, Nestlé, Visa, Home Depot, Samsung, Coca-Cola to name a few.

Or you can ask a financial advisor to do this research for you based on what you think is ethical.

What are the returns of ethical investing?

Traditionally, most people thought that the returns on investing in companies claiming ethical qualities weren’t as good as other investments, and there was some truth in that.

These funds typically had higher fees, while companies that work ethically – for example, insist that their shoes or shirts be made locally where wages are higher, rather than in countries that pay workers a misery – had higher costs, and therefore lower profits and dividends. .

This remains true to some extent, but according to the RIAA, the returns of many ethical funds and companies now outperform the others.

And you get the satisfaction of knowing that your money is contributing to a positive social or environmental impact.

Do your research

The key to ethical investing is deciding what you want to do, then doing your research and asking lots of questions.

This will help you avoid what is called “greenwashing”, where funds and companies can exaggerate or falsify their claims and what they do.

They may pretend too much or not be transparent and choose language that makes it seem like they are ethical when they are not – sometimes it’s as much about what they don’t say as what they say.

Katrina Shanks is the Managing Director of Financial Advice New Zealand.

Provided

Katrina Shanks is the Managing Director of Financial Advice New Zealand.

Beware of false statements. It’s not always just about what companies produce or where they source their ingredients or parts, but how they treat their workers and how well they’re paid.

Personally, I’ve focused on sectors that don’t fit my personal belief system and make sure not to include them in my portfolios.

As my financial adviser would say, ethical investing is about you as an investor taking some control and saying how you want your funds invested. Ethical investing can be like choosing to ride a bike for an errand, or jumping in the car, or perhaps consciously paying to offset the carbon emissions of your next flight. You may not make a difference individually, but collectively it does.

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