Like most investors, your focus is on achieving solid, long-term returns from your diversified portfolio. But a growing number of people are now considering environmental, social or ethical issues as part of their investment approach. Through ‘Socially Responsible Investing’, or SRI, investors are matching their investment strategy to their environmental philosophies by selecting from a growing range of ‘ethical’ managed share funds.
How does it work?
Everyone is acutely aware that the global economy depends on our shrinking natural resources. Many environmental and social challenges are being confronted, for example climate change, our ageing populations and water shortage. As attitudes and government policy change to address these challenges, it opens up new investment opportunities and risks.
Like their mainstream counterparts, SRI funds work by pooling the money of like-minded investors across a diverse portfolio of companies. While SRI funds have varying investment criteria, it is common for funds to actively invest in companies that take the environment and social responsibilities into account e.g. renewable energy, waste management and health care, while avoiding those that don’t, e.g. tobacco, alcohol and gambling.
The focus of an SRI investment may also include integration of environmental, social and governance risks into investment decisions. For example, the impact that a carbon tax may have on the profits of a company with a large carbon footprint may be taken into account.
Improving returns
If you want your investments to benefit people and our planet — as well as your wealth — SRI funds could be just the thing to get your money working for you. SRI fund returns are generally outperforming average mainstream funds for Australian and international equities1. Australia has a number of SRI products, including superannuation funds and managed funds and it is expected that we will gradually see many more funds with an SRI focus.
Seek some advice
As with any kind of investment strategy it’s important to seek advice from a financial planner and choose an SRI fund with care. Don't simply read the headlines or a product disclosure statement — take a closer look at the companies and sectors the fund invests in, because investors' ideas of what is ‘ethical’ can be quite different.
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1 Responsible Investment Association Australasia, The 2010 Benchmark Report www.responsibleinvestment.org/.
Disclaimer: This publication has been prepared for general information and has not considered any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (express or implied) or other information should be acted on without obtaining specific advice from an Authorised Representative Outlook Financial Solutions Pty Ltd. (ABN 40 083 233 925, AFSL 240959)