Australians are demanding more accountability and transparency from their investments, particularly through superannuation funds and fund managers. Yes, people want their investments to provide good returns, but they also want to know their money is invested in industries and companies that are doing good for the planet and not causing harm.
Globally, there are now more than $22 trillion of assets being professionally managed under responsible investment strategies, an increase of 25 per cent since 2014, according to the Global Sustainable Investment Alliance’s “2016 Global Sustainable Investment Review”. In Australia, the growth is even more significant with responsible investments more than quadrupling since 2014, now at $622 billion (or 44 per cent of all investments having some form of responsible investment strategy), according to the Responsible Investment Association Australasia’s (RIAA) “2017 Responsible Investment Benchmark Report”.
Recent research tells us 85 per cent of Australians believe it is important for a super fund to invest money responsibly by investing in companies that build clean energy infrastructure or avoiding investments that can harm communities, such as weapons manufacturing, gambling and fossil fuels. Additionally, four out of five Australians would consider switching their super or other investments if their fund engaged in activities that did not align with their values, according to the RIAA’s “From Values to Riches: Charting consumer attitudes and demand for responsible investing in Australia” study.
The rise of responsible investing is being driven by the conviction that the world’s greatest challenges – climate change, conservation and human rights – require more than just a business-as-usual approach. There is a growing realisation by investors that money, especially through super, can be used as a force for good to solve these larger ethical problems. This is an important realisation, especially for SMSF investors as they have increased control and engagement with their super and can make positive impacts through their investment decisions.
Strong returns
Australians are becoming more aware there are ethical options out there and, in response, ethical consumption is on the rise. Just as we’ve seen a surge in fair-trade coffee and free-range eggs, ethical investing is continuing to grow as more people understand that where they invest can have a meaningful, positive impact.
The great news is investing ethically doesn’t mean you have to compromise on returns. Over the past 10 years, the average responsibly invested share fund returned 6.3 per cent a year, compared with the 3.8 per cent annual return for the average large-cap Australian Share fund, according to the RIAA benchmark report. Australian Ethical’s managed funds mirror this strong performance. Our Australian Shares Fund, for example, has outperformed its benchmark over the medium, long and very long term, returning 10 per cent a year over 20 years and 10.1 per cent a year since inception in 1994.
Transparency
One of the key drivers for SMSF trustees is transparency and control of their money. Through professional, active management, our investors are assured complete disclosure and security that their investments have passed a stringent ethical charter, which has been guiding our investment decisions for more than 30 years. Through positive and negative screening and analysis by our in-house ethics and investment teams, we continually review our investments to ensure they uphold the highest ethical standards, while delivering strong, sustainable returns.
Australian Ethical avoids investments in fossil fuel companies, nuclear weapons, businesses involved in cruelty to animals and businesses that exploit their workers or workers in their supply chains. We instead invest in future-building sectors such as renewable energy, biotech, healthcare and technologies that increase efficiency. We avoid investing in companies with an uncertain future, instead focusing on businesses making a positive impact. For SMSF investors, risk appetite should be integral to investment decisions, and investing ethically can alleviate risk as it focuses on long-term sustainability, mitigates the risk of regulatory and consumer action, and assesses companies with a broader lens.
Diversification
From a diversification perspective, ethical investing creates a portfolio that is different from the run-of-the-mill index. With little to no exposure to resources, only a selection of the banking sector and a focus on renewables, healthcare and IT, adding ethical investments to your portfolio can provide another dimension of diversification. It can also offer access to all asset classes, including shares and property.
A breadth of choice
Investment options are not limited by your ethics. A fully featured provider can offer a range of managed funds, including Australian shares, international shares, fixed interest, income and balanced funds, catering to the full range of risk appetites.
An ethical fund that is professionally managed can safeguard reliable, long-term returns while ensuring transparency and diversification. As with all your SMSF investments, it is important to be engaged and in control when investing ethically and choose an investment that aligns to your values so you can be confident your money is doing good for you and the planet.