Katrina Shanks is the chief executive of Financial Advice New Zealand.
OPINION: When New Zealand signed a co-operation deal on climate change with California it opened up opportunities for the sharing of information, experiences and research in reducing emissions as well as working together on projects that are good for the climate.
The state of California by itself is the fifth-biggest economy in the world (above the UK and just behind Germany), so any joint projects have real potential. The agreement provides a framework for co-operation across a range of sectors, including on zero emissions vehicles, energy storage and smart grids, emissions trading schemes, and climate smart agriculture.
Our Government said it would open up new opportunities for businesses and unlock the potential for private sector innovation and collaboration.
To do that, they will be looking for investors, and that’s when they will be pushing the value of the work they’re doing – their ethical credentials – to encourage people who want to put their money into something that’s going to do good for the planet.
This is already happening across a wide range of companies and being offered by a range of platforms and funds, and is attracting an increasing number of investors who want to buy shares in companies “doing the right thing” by the planet.
It’s called ethical investing, but it’s not restricted to the environment. It can include companies that practise or promote strong social and community values, trade in animal products, or make assault rifles.
So, does ethical investing make a difference, is there money to be made from it, and how do you avoid falling victim to something called “greenwashing”?
For a start, there’s no one definition of ethical investing. It’s simply about your preferences and what you’re comfortable with.
Of course, some investments are considered more ethical than others. For example, those that work in renewable energy or recycling versus those that drill for fossil fuels.
Of you might like a company because it employs lots of people from ethnic minorities, or women, versus those that don’t care about that.
What’s ethical to you may not be ethical to someone else.
What’s ethical, what’s not
Ethical claims are not like organic claims, where companies or funds have to go through a process to prove what they’re doing is what they’re claiming.
Those making “ethical” claims don’t have to prove what they claim.
Investors often have to second-guess things because companies might not don’t disclose everything they do or where they get products from.
Finding ethical companies
There are several ways you can check out a company and its claims.
You could do a Google search for that company’s name to find any news article about it.
Or you could have a look at its annual report on its website. Often this will reveal a lot.
You could also check out the website of the Responsible Investment Association of Australasia (RIAA), which has an online tool to help investors find funds that align with their own goals and ethical values. This is fast and easy and contains a wealth of information.
If you’re investing through an exchange-traded fund (ETF) to buy bonds or shares in companies, the manager of that fund should be able to answer all questions around what companies they’re investing in and their ethical values.
You could also look at the configuration of funds which are deemed to be ethically conscious. For example, Vanguard has an Ethically Conscious International Share Index Fund which comprises over 1600 shares. Some shares included in the fund are Apple, Microsoft, Amazon, Tesla, Alphabet, UnitedHealth, Facebook, Nestle, Visa, Home Depot, Samsung, Coca-Cola just to name a few.
Or you could get a financial adviser to do this research for you based on what you believe is ethical.
What are the returns on ethical investing?
Traditionally, most people have thought returns on investments in companies claiming ethical qualities were not as good as other investments, and there was some truth in that.
Such funds typically had higher fees, while companies that work ethically – for example, insist on having their shoes or shirts made locally where wages are higher, rather than in countries that pay workers a pittance – had higher costs, and so lower profits and dividends.
That remains true to a certain extent, but according to the RIAA, returns in many ethical funds and companies are now out-performing others.
And you have the satisfaction knowing your money is contributing to a positive social or environmental impact.
Do your research
The key to ethical investing is to decide what you want to do and then do your research and ask a lot of questions.
This will help you avoid so-called “greenwashing”, where funds and companies can exaggerate or fudge their claims and what they’re doing.
They can claim too much or not be transparent and choose language that makes it seem like they’re ethical when they’re not – sometimes it’s as much about what they don’t say as what they do say.
Beware of false claims. It’s not always just about what companies produce or where they source ingredients or parts, but how they treat their workers, and how well they pay them.
Personally, I have focussed on sectors which do not align with my personal belief system and ensure I do not include these in my portfolios.
As my financial adviser would say, ethical investing is about you as an investor taking some control and saying how you would like your funds to be invested. Ethical investing may be like whether you chose to ride your bike to run an errand, or jump in the car, or perhaps consciously paying to offset the carbon emissions from your next flight. You singularly may not make a difference, but collectively it does make a difference.