Ethical investing is bigger than ever – here's what you need to know

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A survey found that 69% of Millennials were likely to consider investing ethically in future. But that doesn’t mean older generations don’t care. Baby Boomers, for instance, were more likely to have already invested ethically (26% compared to 18% of Millenials and 20% of Gen X).i

Ethical options on the rise

The investment industry has begun to respond with a growing list of ethical options. Along with specialist super funds such as Australian Ethical and the newer Future Super, which caters to Millenials with its fossil-free funds, most public offer super funds now include ethical or responsible options.

As well as ethically managed funds, fund managers are beginning to offer ethical exchange traded funds (ETFs) and listed investment companies (LICs). BetaShares, Russell Investments and UBS all offer ethical or responsible ETFs while Morphic Asset Management and Hunter Hall offer ethical LICs.

“We’re seeing more opportunities to invest in the ethical space compared with even just five years ago”, says Tim Fitzpatrick, a financial planner with Ethical Investment Services.

This is backed up by the latest figures from the RIAA, which show that $622 billion was invested according to broad environmental, social and governance principles in 2016, around half of all professionally managed assets in Australia.ii

In the past decade, core responsible investment strategies have grown from $12 billion in funds under management to $65 billion. Core strategies include positive and negative screening, sustainability themes, impact investing, community finance, and corporate engagement.

Advisers responding to the trend

Fitzpatrick says it’s now possible to build a diversified ethical portfolio using managed funds and direct shares (using a screening approach or sustainable themes). Investing ethically can also be done without sacrificing returns. The RIAA report found core responsible investment funds outperformed equivalent Australian and international equity funds over most investment horizons.iii

Fitzpatrick believes more advisers are responding to the growing demand for ethical and responsible investment. Information is also becoming more widely available now that many companies include sustainability impacts in their annual reports.

“As more financial institutions sign up to ESG principles it makes sense that advisers take this into account”, says Fitzpatrick.

Given 65% of Australians say they consider social issues when making consumer purchases, not being able to talk knowledgably about ethical investment could become a risky proposition for advisers, particularly if they want to attract and retain millennial clients.iv

“Our younger clients are not just interested in aligning their values with their investments but also with where they shop, where and what they eat and where they go on holidays”, says Fitzpatrick.

He says his clients say they don’t want to contribute to something they see as doing bad to society, such as fossil fuels, weapons and armaments and animal cruelty. “At the same time, they want to encourage things like clean technology and renewable energy,” he says.

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i https://responsibleinvestment.org/resources/benchmark-report/2016-benchmark-report/   ‘Responsible Investment’ survey by Lonergan Research for Responsible Investment Association of Australasia, October 2016.

ii https://responsibleinvestment.org/resources/benchmark-report/ Responsible Investment Benchmark Report 2017, Responsible Investment Association of Australasia.

iii https://responsibleinvestment.org/resources/benchmark-report/Responsible Investment Benchmark Report 2017, Responsible Investment Association of Australasia.

iv https://responsibleinvestment.org/resources/benchmark-report/2016-benchmark-report/  ‘Responsible Investment’ survey by Lonergan Research for Responsible Investment Association of Australasia, October 2016.

Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. Ethical Investment Services is an external entity that is not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by Ethical Investment Services and its employees does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the CBA Group do not accept any liability for losses or damage arising from any reliance on external parties their products, services and material.