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Ethical Investment

By Alan Hewett, Chiltern Landcare member

Many people, particularly in industry superannuation funds, do not know how their money is invested. When making investments these funds are not required to take into account any ethical considerations.

There could be investments in weapons, gambling, tobacco, old growth logging, uranium mining, or animal cruelty. There is no consideration for worker’s rights or the long term sustainability of a company. For many investors this is not appropriate and choose to place their money in ethical or socially responsible funds that reflect their social and environmental concerns while still providing a financial return.

About $7 billion of the trillion dollar superannuation industry is invested in ethical considerations. Even Australia’s Future Fund has divested its tobacco and coal interests.

Ethical investment is not new. In 1758 the Religious Society of Friends, or Quakers, banned its members from involvement in the slave trade. This theme was taken up by the Methodist, John Wesley, who urged his parishioners not in invest in business practices that would harm their neighbours or exploit workers.

Ethical investment helped to bring down apartheid in South Africa. From the 1970’s international companies withdrew investment in that country resulting in 75% of South African employers drafting a charter calling for an end to that abhorrent system.

Ethical funds have a peak body called the Responsible Investment Association Australasia (RIAA.) This organisation has a certification program and any super funds that claim to be ‘ethical’ must present its case. The process is independently verified by an accounting firm and only then can a fund be RIAA certified.

An important ethical shift in recent years has been the increasing stress on the sustainable approach to investment or, environmental, social and governance risk management (ESG). Fund managers look at how companies manage the environmental and social impacts of their activities. There is a belief that companies that do less harm, look after their staff and are well managed provide a better return. Comments that renowned investor Warren Buffet would agree with.

However, any prospective investor must be careful when considering which funds to choose. A company that is financed by ethical sources may not remain so. Also funds may not completely avoid involvement in non-ethical investment. Funds must be entirely transparent about their portfolios.

For investors who want a reasonable return on their money and want to invest in companies that do not cause harm, ethical investment is the way to go.