Ethical investing is a growing area of interest for many Kiwi investors. But what exactly does ethical investing mean?
What is ethical investing?
Broadly speaking, ethical investing is choosing to invest in a fund that aligns with your personal values. If you want to avoid investing in industries that you don’t agree with or feel cause harm to society or the environment, choosing to invest your savings in an ethical fund is a way to ensure your money doesn’t end up supporting those industries. Generally, there are two types of ethical investing:
Responsible investing
Responsible investing takes a holistic approach and looks at all aspects of a company’s performance – including how seriously the company takes its environmental, social and governance (ESG) responsibilities. Responsible investing does not typically rule out investing in any sector or company – instead, a positive filter is applied. So, you might end up in investments in a large oil company or wine manufacture, but one that is committed to reducing its environmental impact and pays its workers a living wage.
Socially responsible investing
Socially responsible investing excludes investing in specific industries or sectors. Socially responsible investment funds (SRI) allow investors to avoid investing in specific areas that are not aligned with their personal values.
What about ‘greenwashing’?
One of the biggest barriers for many people choosing to invest in a socially responsible option is being confident the investment fund is as ethical as it claims to be. The Responsible Investment Association Australasia (RIAA) is an independent certification body that certifies funds that follow certain responsible investment principles in New Zealand and Australia. If you’re not sure about an investment fund’s credentials, look for the RIAA certification mark.
Is there an ethically perfect fund?
It really depends on what is important to you as an investor. It could be that you want to avoid investing in specific industries like fossil fuel exploration or nuclear power. For others, it could be about investing in funds that are committed to social good. It’s important to choose an investment fund that aligns with your personal values but also offers you long-term performance. Your adviser can help you work out what issues are important to you and match you to a selection of funds that best match your investment goals.