This weeks piece spawned out of an item in the Brain Food section of our regular GainingCHOICE email that you are hopefully receiving (if not, go here).
Ethical, sustainable, or ESG investing, it’s known by many terms, but this approach has been one that’s been a focus and embedded into my financial planning business for many years. As a result we’ve witnessed firsthand through the performance outcomes of our clients the strong positive impact that this methodology can have when endeavouring to build wealth and gain choice in life. It was once assumed that to pursue an ethical investment approach meant accepting a compromise when it came to returns. But as I’ve covered in previous episodes, that has been shown to be a falsehood.
This week’s episode looks at a small thread within the broader ethical investment world. I hope you find it interesting.
Pandora, the world’s largest jewellery manufacturer, will cease using mined diamonds. In future the only diamonds it will use will be those manufactured in a laboratory. The reason for the move is concern for the working conditions of diamond miners, primarily in Africa. This is an extension of previous commitments made by the company to only use recycled gold and silver, and have all operations carbon neutral by 2025.
It follows the rise of vegan leather products by companies like Sans Beast, and the massive research going into producing lab-grown meat. Where once pure and natural was the ideal, increasingly artificial replacements are shaking off the stigma they once held and are being seen as the preferred option for both consumers and sellers.
Assuming these trends continue, it’s a great success story for activists broadly who have created community awareness of the negative issues that sit behind previously unquestioned norms. But it’s a particular success for the ESG (Environment, Sustainability, Governance) investment community. Sometimes also known as Ethical or Responsible investment, the mainstreaming of this approach has provided forward looking management with the confidence and backing to make changes that benefit not only our society, but also their shareholders. As an illustration, the Pandora share price is up 160% over the past 12 months.
Through the application of an ESG investment approach by investors, companies that do the right thing for society and the planet get rewarded via access to capital and a rising share price, whilst others are encouraged to head in this direction. And as the research produced by the Responsible Investment Association of Australasia has consistently shown, investing using an ESG approach is not only about feeling good and having a positive impact, it also makes investment sense. In their most recent report (2020) they found that funds operating under a responsible investment framework outperformed the broader market across 1,3,5 and 10 year period for Australian Share and Multi-Sector funds, and across 3,5, and 10 years periods for International share funds. And this is consistent with the investment outcomes we’ve seen with our clients.
So how does this help you gain choice and achieve financial autonomy? The ability to direct your investments into funds that apply some sort of ethical screening process may not be something on your radar. But almost all super funds these days will have an ethical or sustainable investment option. So you might want to jump onto your funds website and see what they offer and the criteria that they use. Most to be honest are fairly weak, in that exclude very few investments and do nothing to seek out companies doing positive things, but it’s a step in the right direction. To go further you might need to change funds and use quite specific investment options that align with your goals and interests. Of course if you’re after some advice in this regard we can certainly assist so check out the Advice page on the financial autonomy website for all the details.
I think for me what’s really valuable is an awareness that through the allocation of our savings we can have an impact. I’m not someone who’s ever going to chain myself to a tree, or march down Bourke street waving a banner. But that doesn’t mean I don’t care about our world and its future. The fact that I can make a difference through how I choose to invest my money is empowering. And I know just through talking to the clients that we work with who have gone on this journey, it’s something that they similarly find very positive and rewarding.
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