Did you know that right now your Super could be invested in weapons, tobacco, coal, logging, human exploitation and other “lovely” endeavours? If just reading this makes your heart skip a beat (and not in a good way), read on to find out how you have the power to align your money with your values.
It’s 2018 and even though ESG rated investing (Environmental, Social and Governance), has been around for a while, it’s come a long way. Let’s take a closer look at it, so you can make more ethical investment decisions.
ESG acts as a screening tool to rate the social responsibility of a company alongside more traditional financial metrics .
What does this mean? Here are the basics you need to know about ESG investing:
Environment:
Rates a company’s energy usage, efficiency, pollution levels, impact on climate change, green footprint and also how these environmental factors may affect company earnings, ie: Publicly reporting greenhouse gas emissions and energy management of a company and committing to key environmental goals to do with renewable energy.
Social:
Shows the impact a company has on their employees’ health conditions, human rights and how they value different aspects of their workforce (aka – Human Capital). It also looks at how much a company gives back to the community.
Governance:
This is a measure of how ethical and transparent a company’s management structure, employee relations and stakeholders are ie: how is whistle blowing treated and are there sufficient anti-corruption measures in place?
Ethical funds are gaining popularity as they are proving to be on par with other investments in terms of risk and return. Knowing that you can support these companies and put the planet first is a win-win.
Gen Y and Millennial demand for sustainable options are driving the need for super funds to come to the table and offer these choices.
However, investors beware! It is becoming apparent that some Super funds may be exaggerating just how “ethical” they are through good ol’ fashioned marketing spin.
Top Things to look out for:
- When looking at ethical investment options for your Super, it’s important to look at what the fund is actually invested in and if they have ESG ratings to back their claim.
- The ESG rating of a managed fund is an average measure of all the fund’s individual holdings therefore the fund may still carry some poorly rated stocks that are outweighed by stocks that rate well on ESG criteria.
- Check if your super fund is incorporating ESG data into their investment analysis or if it is an afterthought. Better run funds will have ESG rankings at their core and make investment decisions from this point.
As sustainable investing is set to flourish, ratings are likely to become more standardised and this is a good thing for consumers and the industry.
If you’re interested in how you can ethically invest your Super to align with your own values, book in your free 30 minute chat with me today to talk it through! I’d love to hear from you.
General Advice Disclaimer
This blog contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making any strategy or product decision. InterPrac Financial Planning Pty Ltd and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.