Sustainable & Ethical Investing – Making Money & Doing Good

There is no doubt that interest in responsible investments is growing. Not only in Australia but globally, investors are increasingly interested in how a company makes its money, not simply how much it makes.

While some investors may focus on the longer-term viability of a company and its behaviour, others may hold particular values they want their investments to mirror. How these two strategies play out in the investment’s context can be different. We explore the rise of sustainable investing in more detail.

Sustainable investing: changing investors’ perception

Even at the highest level, investors are shifting from only looking at short-term returns to a broader focus on long-term value creation, including the impact a company is having on those around them. In his 2017 letter to the CEOs of the companies his firm invests in – Blackrock CEO, Larry Fink, highlighted this exact issue noting that “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate”. More and more investors are asking CEOs to focus not only on creating shareholder value, but also on long-term vision for the company, and, by extension, the impact it will have on society via investing sustainably.

Sustainable investing: it’s not a new idea

Today, many investment managers, use environmental, social and corporate governance (known collectively as ESG) knowledge and data. It can help to inform the analysis of important areas including risk and innovation to engagement and voting practices. Examples may include a company’s interaction with the environment, such as water and air pollution, social factors like employee diversity or safety standards, along with the company’s governance structure, such as how the board is composed and compensation structures. This approach seeks to add value or manage risks through broader, more comprehensive investment analysis, decision-making and engagement with companies.

Sustainable investing opportunities

For investors, navigating the world of responsible investment can be complex. Terms like ethical, sustainable and impact investing are often used interchangeably by investors seeking to ensure that their money is invested in companies or funds that mirror their values and beliefs. In reality, these terms each relate to a specific type of responsible investing – depending on what the investment is trying to achieve.

Ethical investing verses sustainable investing

Arguably, the most well-known responsible investment strategy among investors is ethical investing. This strategy’s primary purpose is to exclude certain industry sectors, companies, practices or even countries that meet specific criteria from a fund or portfolio, based largely on the client’s preference not to be invested in these activities. Traditional ethical investment strategies seek to avoid issues like tobacco, weapons, gambling, and pornography; however, investors are increasingly interested in strategies that avoid sectors linked to climate change or abuse of human rights.

Sustainable investing, in contrast, is a type of responsible investing that considers ESG issues in an investment, alongside standard financial measures when assessing a company’s performance. This might include how a company approaches employee relations, executive remuneration and anti-money laundering legislation.

Sustainable investing also lends itself to longer-term investment horizons and strategies. If more investors use a sustainable strategy in their investment decision-making, more and more companies will be encouraged to behave sustainably and address ESG concerns and opportunities in their business.

Impact investing is a rapidly developing field

You may also have heard about the rapidly developing field of impact investing. Impact investments preference the social or environmental purpose of an investment over or alongside its financial results. Whilst there are currently few opportunities to access impact investments for most retail investors, many people are attracted to the idea of investments that aim to deliver a positive outcome as an alternative, or complement to traditional philanthropic funding.

How investors get involved with sustainable investing

If you are interested in sustainable investing, speak to our Newcastle Financial Planning Advisers who have constructed & managed over $60m in ethical & sustainable investment portfolios.

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Our Newcastle financial planners also have offices in Sydney and help clients across the local areas including Newcastle Financial Planning(Merewether financial planning, The Junction financial planning, The Hill financial planning, Bar Beach financial planning, Newcastle West financial planning, Hamilton financial planning, Adamstown financial planning, Redhead financial planning, Whitebridge financial planning, Kotara financial planning, New Lambton financial planning, Mayfield financial planning), Maitland Financial Planning (Morpeth financial planning, Lorn financial planning, Rutherford financial planning, Aberglasslyn financial planning, Metford financial planning, Beresfied financial planning), The bay (Medowie financial planning, Fern Bay financial planning, Fullerton Cove financial planning, Anna Bay financial planning, Nelson Bay financial planning, Shoal Bay financial planning, Tea Gardens financial planning, Hawks Nest financial planning), Lake Macquarie Financial Planning (Cardiff NSW financial planning, Glendale financial planning, Speers Point financial planning, Fennell Bay financial planning, Bolton Point financial planning, Coal Point financial planning, Toronto financial planning, Valentine financial planning, Belmont financial planning, Eleebana financial planning, Warners Bay financial planning, Caves Beach financial planning), Hunter Valley Financial Planning (Muswellbrook financial planning, Scone financial planning, Pokolbin financial planning, Cessnock financial planning, Singleton financial planning, Broke financial planning, Rothbury financial planning), Central Coast Financial Planning (The Entrance financial planning, Bateau Bay financial planning, Berkeley Vale financial planning, Tuggerah financial planning, Wamberal financial planning, Terrigal financial planning, Erina financial planning, Avoca financial planning, Gosford financial planning, Woy Woy financial planning, Picketts Valley financial planning) & Sydney Financial Planning (Castle Hill Financial Planning, Rouse Hill Financial Planning, Dulwich Hill financial planning).

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