Ethical investing is currently in our news because of a court case brought against a large superannuation fund, REST Super, by one of its members for failing to adequately consider financial risks arising from climate change.
Also, as it happens, a member of one of the more civilised online forums asked very recently about ethical investing and received some good answers. That synchronicity encouraged me to turn the forum posts into something more readable for Green Path by combining and rewriting the replies of several members; that means it is not all my own work although it appears under my name as usual.
We will begin with the online Q & A, and then return to the court case.
The Question
I have been saving money for a long time and a lot of it is in different mutual funds. I chose them with ROI (Return On Investment) in mind (making the most money out of them) but I’ve been thinking for some time that I should move the money.
I don’t mind investing in something I’d consider neutral but since a mutual fund has stocks in many companies, I figured some of my money is invested in “evil” companies such as those that don’t care about environment or human rights. So profit is not my sole concern now and I was wondering about my options. Ideally I’d want to invest in something “good”, like a company which makes real efforts toward the environment, etc..
Thank you in advance for your answers.
The Answers
(1) In Australia, there are at least two investment funds on the stock market that claim to have ethical investments. They claim things such as:
- Share investments produced 70% less CO2 than benchmark;
- Nil investment in fossil fuels;
- Nil investment in nuclear;
- Nil investment in tobacco;
- Six times more investment in renewable power generation than the global share market…
However, when we examine the companies they invest in, we see most of them are connected to the entire world economy and are therefore providing services to non-ethical companies and even non-ethical governments. In other words, there is a real blur between what is ethical and unethical. For example, one of these ethical funds owns shares in Microsoft and Facebook, both of which are engaged in both ethical and non-ethical business practices.
(2) Yes, the lines are blurred but investing in these ethical funds is still a good choice in that (a) they nevertheless do less harm than other funds, and (b) they usually offer very nearly the same ROI as non-ethical funds. It’s a compromise of course but it’s a step in the right direction and it’s very manageable.
For instance, a lot of my money is in superannuation funds, each of which offers a range of investment options, e.g., shares, cash, property, mixed, and “socially responsible” portfolios. Shares offer high ROI and high risk, cash is the opposite, mixed is their own best compromise without taking onboard the ethical dimension, and “socially responsible” is their best guess after dropping the nasties.
Fund members like me can choose their priorities and put their money where they like. It all works pretty well, I think. I certainly do better there than I would if I tried to do it all myself, and it only takes me a few minutes per year to manage.
However, you do need to look at the specifics of the portfolios. It’s possible to invest in such a fund only to find out a large percentage of the portfolio in in a major defence/weapons manufacturer. Clearly what a fund manager considers “socially responsible” is not what we may call ethical!
(3) Ethical investment funds are usually very public about what they do and don’t invest in, for the very good reason that that is how they attract investors. Look at these, for example –
(not that I am particularly recommending them, but they’ve been around for a while and came up near the top of my search results). And if you don’t like their priorities, try elsewhere – there are lots to choose from.
Their performance is also very public, and for the same reason. My experience is that they don’t do much worse than non-ethical funds, e.g. 7.5% or 8% ROI, as against 9% for similar risk profiles, and they sometimes do better. I’m happy enough with that.
The case against REST
ABC News says:
In July, a landmark trial will take place in a Sydney courtroom that could potentially change the way superannuation funds invest Australians’ almost $3 trillion in retirement savings.
The case, which could set a worldwide legal precedent as to how pension funds manage climate-change-related financial risks, is thanks to a 24-year-old Brisbane-based council worker with an ecology degree.
Mark McVeigh can’t access his super money until 2055 but says climate change impacts are already materialising and, therefore, investors should be acting.
It is this belief that led to his case against $57 billion superannuation fund Retail Employees Superannuation Trust (REST).
Mr McVeigh has alleged that REST has failed to protect his retirement savings from the financial devastation that will flow from climate change.
Market Forces
Market Forces was launched in 2013 explicitly to put pressure on banks, superannuation funds and insurance companies and get them to divest from fossil fuels. Here’s their mission statement:
Market Forces believes that the banks, superannuation funds and governments that have custody of our money should use it to protect not damage our environment.
Our work exposes the institutions that are financing environmentally destructive projects and help Australians hold these institutions accountable. We work with the community to prevent investment in projects that would harm the environment and drive global warming.
Market Forces presents a table showing “which super funds are invested in companies that are actively undermining the climate goals set out in the Paris Agreement” and encouraging readers to “take action to tell [their] fund to lift its game on climate action.” This aim is narrower than ethical or socially responsible investing as such, since it focuses explicitly on the environment, but the table is interesting for the variety of management practices it reveals.
Market Forces is an affiliate of Friends of the Earth Australia. Internationally it is associated with BankTrack, set up in the Netherlands in 2003:
BankTrack is a non-governmental organization working in the field of private sector banks and sustainability. BankTrack uses direct action, lobbying, and research to achieve its goals. BankTrack focuses primarily on the work of private sector banks and their involvement in projects that are a risk to the environment, society or human rights.
(More at BankTrack’s own site, banktrack.org/)
Finally, I will adapt Market Forces’ disclaimer and make it mine:
DISCLAIMER: The information provided here does not constitute financial advice. It is presented in order to inform people motivated by environmental concerns and take actions based on those concerns. The information provided here does not account for any individual’s personal objectives, financial situation or needs. It should not be relied upon or treated as a substitute for professional advice.
In another sign of the growing momentum, The Guardian announced today that it will build on existing policies by rejecting advertising from fossil fuel producers.
We have a result in the REST Super case, and it’s a good one:
Market Forces has updated its comparison table, too, and the new one is at https://www.marketforces.org.au/superfunds/