The concept of ethical investing is on the rise and is now an important option that many personal investors want to explore.
The last few decades have seen a growing awareness in society about the impacts our lifestyle and our consumption have on environmental and social welfare. This concern for our relationship with our planet and fellow human beings has also become a major issue in personal investment spheres and the concept of ethical investing is now one that many investors are interested in.
What is it?
Ethical investing relates to the scrutiny that a managed fund manager places on the election of assets, so that they examine the environmental and social aspects of each of their investments and not just the commercial considerations. This has resulted in a new sub-class of managed funds known as ethical funds.
The concept of ethical funds has matured in recent years and there are now sophisticated review processes involved in analysing the way that investments can qualify to be included in an ethical fund.
Positive and negative screening
In general, there are two methods applied to ethical investment selection:
Positive screening – where the fund manager is proactive in sourcing companies that abide by high ethical standards; and
Negative screening – which takes a more passive approach based on excluding companies with poor ethical practices. Beyond these general categories, each fund manager may implement more specific criteria for making selections.
The popularity of the ethical investing movement has led to the formation of an industry body known as the Responsible Investment Association Australasia.
This association sets out standards for fund managers to apply in their investment selection process, so that personal investors can have confidence in a fund’s ethical bona fides.
Would an ethical fund suit you?
Despite the layer of extra scrutiny involved, ethical fund performance can generally be comparable to funds without ethical screening, so they can be a worthwhile fund category for many investors to consider.
Information current as at June 2017 – This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read the Product Disclosure Statement (PDS) before making a decision about a product