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Ethical Investments in Australia

5 Common Assets – Ethical Investments in Australia

In the high-stakes world of finance, where profits often collide with ethics, a new arrangement seeks to balance prosperity with strong ethical ideals.

Ethically conscious investing goes beyond traditional financial instruments, inviting investors to play a pivotal role in serious environmental issues and shaping a better world while safeguarding their financial futures.

Whether you’re a seasoned investor or new to the world of finance, investing in companies that match your moral code is a way to support businesses that prioritise social and environmental responsibility.

Let’s walk through the world of ethical investments in Australia before you jump in on the ethical investment bandwagon.

Understanding Ethical Investments

Ethical investing, aka values-based investing, refers to an investment strategy where an individual’s ethical values, such as moral, religious, or social beliefs, are the primary objective, along with good returns. Ethical investing is beneficial to society, but it needs to fulfil certain high standards to achieve.

Ethical investors typically avoid investments in ‘sin stocks’, which are companies involved with stigmatised activities, such as gambling, alcohol, smoking, or firearms. Others avoid companies they perceive as practising animal cruelty or harmful to the environment such as fossil fuel companies and mining companies.

As such, ethical investing requires more research than other investment strategies, and investors need to scrutinise the historical, current, and projected performance of the investment.

Australia’s Ethical Investment Landscape

Australia’s ethical investment landscape is gaining prominence, with investors seeking to grow their wealth while avoiding destructive, dirty, or morally questionable industries and practices.

The Australian Treasury mandates coming into effect from 1 July 2024 will require large companies, listed entities and large financial institutions in Australia to disclose climate-related risks and opportunities, metrics, and targets, including greenhouse gas emissions from all sources to better ascertain their ethical practices.

To start investing ethically in Australia, investors may take stock of what matters most to them before building or rebalancing a portfolio in alignment with their values.

What to evaluate in a company for ethical investments?

Australian investors can critically evaluate investment opportunities by taking a closer look at a company’s operations, including supply chains, partnerships, financial commitments, and philanthropic efforts. Staying informed by reading a company’s official strategies and statements and following the news may help to identify ethical companies and institutions.

In 2024, the investment management industry presents both opportunities and challenges. Firms are focusing on emerging technologies, talent modernisation, client experience, purpose, ESG practices, and workplace environments to differentiate themselves.

Common Ethical Assets in Australia

Ethical investing, also known as green investing, has grown in Australia over the last decade. As such there are now many socially responsible investments for you to put your money into. However, navigating through the multitude of options demands a discerning eye, as only a limited selection truly satisfies the most ethical considerations.

Here are some ethical investment options that may help shape your portfolio and potentially secure financial returns whilst also contributing positively to the planet, society, and future generations:

What are some ethical investment assets available for Australians?

Managed Funds

Managed funds are a common investment option among individuals seeking to incorporate an ethical dimension into their portfolios. However, only a limited selection of ethical investment funds satisfy ethical, environmental, social, or religious criteria.

For example, an ethical fund may state that it avoids investing in companies that would directly or indirectly fund animal testing. But on the other hand, it may invest in companies that don’t monitor their carbon emissions.

Thus, conducting a thorough investigation on potential ethical investment funds is crucial in the screening process to ascertain their compatibility with your investment requirements.

Most ethical investment funds in Australia are actively managed investment funds. These ethical investment funds aim to deliver long-term, risk-adjusted returns and positive change for people, the planet, and animals.

One example of an ethical fund is Australian Ethical*, which has been investing ethically since 1986.

Another example of an ethical shares fund is the Ethical Investment Growth Portfolio*, which invests across a diversified range of growth investments, including Australian shares, international shares, and property assets.

Exchange-traded funds (ETFs)

An exchange-traded fund (ETF) is like a managed fund that invests in different asset classes but trades on the stock exchange. An Australian ethical ETF can be traded as easily as any other shares on the exchange.

Australian ethical ETFs focused on sustainability and ethical business invest in Australian companies that prioritise sustainability and ethical business practices, such as those with a small carbon footprint or those that promote social justice.

These are designed to provide you with a way to invest in companies that align with your values while also providing diversification and liquidity. Examples of ETFs focused on sustainability and ethical business in Australia include:

  • Vanguard Ethically Conscious Australian Shares ETF (VETH)* invests in ASX-listed stocks. It aims to minimise currency fluctuations on any returns and invests predominantly in international tech and fintech companies.
  • SPDR S&P World ex Australia Carbon Control (Hedged) Fund (WXHG)*  invests in companies that reduce their carbon intensity. Approximately one thousand equities are represented in the ETF, the majority of which are in sectors that are underrepresented on the ASX.
  • BetaShares Global Sustainability Leaders ETF (GSL)* invests in companies with strong ESG performance and focuses on sectors such as healthcare, clean technology, and renewable energy.

A more specific type of ethical ETFs are Thematic ETFs. Thematic ETFs invest in companies that are focused on specific themes, such as healthcare, clean tech, or renewable energy.

Thematic ETFs are designed to provide you with exposure to companies that are working towards a specific goal or theme. Examples of thematic ETFs in Australia include:

  • iShares MSCI Australia Healthcare ETF (AHCA)* tracks the MSCI Australia Healthcare Index, which is designed to measure the performance of companies in the healthcare sector in Australia.
  • BetaShares Global Clean Energy ETF (GCLN)* invests in companies involved in the development, production, and distribution of clean energy technologies, such as solar, wind, and hydroelectric power.

Share Trading

If you are looking to purchase shares of individual companies that meet your ethical criteria, you may consider direct share trading. This can be done through a financial adviser, traditional stockbroker or online share trading account.

While you may access some ethical shares via a managed fund or a superannuation fund, they may have specific restrictions regarding which ethical companies you can invest in, thus limiting your ethical investment options.

If you are considering ethical share trading, it can be a little more work to find the right ethical companies. However, most online share trading platforms let you conduct detailed searches of companies based on certain criteria.

You can start researching investment options using the Responsible Returns tool offered by the Responsible Investment Association Australasia.

Super Funds

Ethical superannuation funds focus on investing in industries and companies with a social and environmental purpose, aligning with the values of individuals who want their retirement savings to support businesses that are making a positive impact on society and the environment.

Examples of ethical super funds (or super funds that have an ethical investment offer) include:

  • Australian Ethical Super* investments focus on industries and companies that are considered to be ethically responsible. They actively screen out companies that engage in poor practices and prioritise investments in companies with a strong environmental, social, and governance (ESG) perspective.
  • AustralianSuper* offers an ethical investment option within its superannuation fund, allowing members to invest in industries and companies that align with their ethical values. The fund focuses on responsible investments and provides transparency about its investment holdings.
  • CareSuper* offers an ethical investment option that allows members to invest in industries and companies with a strong ESG focus. The fund actively considers the social and environmental impact of its investments and aims to support businesses that prioritise responsible practices.
  • Future Super* actively avoids investing in harmful industries like fossil fuels and channels members’ money into industries that have a positive impact on the environment. Future Super estimates the carbon abatement impact of its investments, allowing investors to see the environmental benefits of their super investments.
  • CBus* offers an ethical investment option that focuses on investing in industries and companies with a strong ESG focus. The fund actively considers the social and environmental impact of its investments and aims to support businesses that prioritise responsible and sustainable practices.

Additionally, you can opt to invest ethically via a personal superannuation fund or a self-managed superannuation fund (SMSF), purchasing the above-mentioned managed funds, ETFs and shares within your account.

Those with a personal superannuation fund or self-managed superannuation fund can invest their retirement savings in assets that match their personal values. For example, if you want to invest in companies that promote animal welfare or are environmentally friendly, you can do so.

Building an Ethical Investment Portfolio

There are several steps you may follow to build an ethical investment portfolio that aligns with your values and supports companies with a social and environmental purpose.

How to build an ethical investment portfolio?

Here’s a step-by-step guide to help you build a well-diversified and ethically aligned investment portfolio:

  1. Take stock of your values: Before building or rebalancing a portfolio in alignment with your ethics, take stock of what matters most to you. This will help you critically evaluate investment opportunities and ensure they align with your values.
  2. Research companies and funds: To critically evaluate whether an opportunity fits within your definition of an ‘ethical’ investment, take a closer look at a company’s operations, including supply chains, partnerships, financial commitments, and philanthropic efforts. Stay informed by reading a company’s official strategies and statements, following the news, and researching groups like the Responsible Investment Association of Australasia (RIAA).
  3. Consider different investment types: There are various types of ethical investments available in Australia, such as individual shares in companies that may match your moral code, ETFs focused on sustainability and ethical business, thematic ETFs, ethical Australian shares funds, and ethical super funds.
  4. Choose a financial adviser: If you’re unsure about the advantages and disadvantages of ethical investing or need guidance on building an ethical investment portfolio, consider consulting an experienced investment adviser. They can help you understand your money matters and provide personalised advice based on your values and investment goals.
  5. Diversify your portfolio: To minimise risk and maximise returns, diversify your ethical investment portfolio across different asset classes, sectors, and geographies. This can potentially help you achieve a balance between financial performance and alignment with your values.
  6. Monitor and adjust your portfolio: Regularly review your ethical investment portfolio to ensure it continues to align with your values and meets your investment goals. Adjust your portfolio as needed to maintain alignment with your ethical principles and financial objectives.

Future Trends in Ethical Investing

As the demand for ethical investments continues to grow, it is likely that the landscape will continue to develop and expand in the years to come.

Future trends in ethical investing around the world indicate a positive trajectory for ethical investing, with increasing integration into mainstream investment practices, evolving strategies, and a supportive regulatory and technological environment.

Here’s a list of future trends around the world:

  • Growing Investor Demand: There is a promising future for ethical investments, with growing investor demand, technological advancements, and supportive regulatory environments. As more investors recognise the potential benefits of ethical investments, these strategies are likely to continue to evolve and expand in the coming years.
  • Regulation and Policy Landscape: National and international regulatory frameworks are increasingly shaping the future of ethical investing. More stringent regulations and supportive policies are being developed to encourage and standardise ethical investment practices.
  • Evolution of Ethical Investment Strategies: Ethical investing has evolved to incorporate more sophisticated strategies and a broader range of investment vehicles. These include positive screening, negative screening, and the development of professionally managed investment vehicles, such as ethical funds or Australian ethical ETFs that focus on companies with strong environmental, social, and corporate governance (ESG) performance or specific ethical themes.
  • Mainstream Integration: Ethical investments are increasingly becoming mainstream, with a growing number of investors recognising the potential financial and societal benefits of aligning their investments with their values. This integration is not only driven by individual investors but also by institutional investors and financial institutions.
  • Technological Advancements: The use of technology, such as data analytics and artificial intelligence, is expected to play a significant role in the future of ethical investing. These advancements can help investors better assess the ESG performance of companies and make more informed investment decisions.
  • Global Expansion: While ethical investing has been prominent in developed markets, emerging markets are experiencing rapid growth in this area. The future prospects of ethical investments are not limited to specific regions but are expected to expand globally.

Ethical Investments in Australia: Grow Your Money with Ease

Investing ethically is a terrific approach to making financial decisions that are consistent with your values. However, finding the appropriate investments that satisfy your ethical standards can be difficult.

As always, before selecting a specific investment to add to your portfolio, make sure to consider the advantages and disadvantages of all available investment choices.

Whether you invest ethically or not, there are always risks involved. You need to know what you’re getting into to avoid jeopardising your future financial stability.

Ready to Build an Ethical Investment Portfolio? 

While ethical investing can seem complicated and time-consuming, it doesn’t have to be that way with knowledge and expert guidance. Whether you’re young or old, it’s never too late to start with ethical investing to achieve your goals.

Need investment advice? Coastal Advice Group can work with you to tailor your investment plan and build your portfolio. Our financial advice team can help you establish direction for your investments to achieve your financial and lifestyle goals.

Call us or book online to secure your consultation today!

 

* The investment products referenced in this article are provided for illustrative purposes only and do not constitute a recommendation to invest by Coastal Advice Group Pty Ltd or RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. Please see the below disclaimer for more information.

 

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DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
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