The rise of ethical investing

Jessica Satherley
The rise of ethical investing

Socially responsible investing is the hot new trend in investment circles.   

Possibly the most prominent example of socially responsible investing (SRI) is the array of funds that have exited the tobacco industry in the past few years. 

For ethically-focused investors who want to target SRI, there are a few ways they can do this.  

“A good place to start is to consider how the fund you are selecting takes into account the ESG (environment, social and governance) risks of a company when investment decisions are made,” says Anna Boyle, Portfolio Manager from BT Funds Management[1],   

“For example, has the fund manager considered the potential financial impacts on a company of climate change, or, do the governance arrangements in place support good quality decision making that will enhance shareholder value over the long term? 

“Secondly, investors may want to consider excluding certain companies or sectors or even up-weighting others where this supports or goes against responsible principals. Examples could investments in weapons or tobacco manufacturers. 

“Lastly, does the manager engage with the companies they invest in and/or use your power as a shareholder to vote on certain policies to encourage them to improve their practices”, Boyle said. 

In the 2018 Responsible Investment Association Australasian (RIAA) benchmark report, the association noted a 40% increase in New Zealand by way of assets over the year for funds designated as investing responsibly.   

One growing area of interest as far as SRI strategies go is in the field of green technologies, and more specifically renewable energy. 

Boyle says, “renewables are generating fast growth in the sector and are a real focus of investors at the moment. 

“New Zealand has some good examples of renewable energy companies with Mercury Energy, for example, now promoting themselves as 100% renewable generating through water and geothermal. 

“Another example, Nextera Energy in the US, is the world’s largest producer of wind and solar energy, and has been a very strong investment,” Boyle said.  

In a recent survey, New Zealanders’ listed their top three issues to avoid when investing as those that involve animal cruelty, human rights abuses and labour rights abuses.    

Avoiding sectors such as tobacco, personal firearms and nuclear power were also rated as very important, according to the 2018 Colmar Brunton survey.  

Westpac’s responsible investment policy includes not investing in tobacco, controversial weapon and civilian assault weapons manufacturers, and whale meat processors; but for those who want to create their own portfolio aside from KiwiSaver, Boyle advises to do your homework or get some expert help.  

“If you’re investing through an online investment platform you should still diversify your risk, as we do with KiwiSaver funds, because some of the investments you elect might not do well.  You also might not be offered tailored advice,” she said.  

“Don’t just buy shares in one or two companies. There’s a lot of work involved in managing investments on the stock market and you need to make sure your risks are well managed and portfolio well diversified.   

“Therefore, my preference for someone is always to invest through a fund.  

“KiwiSaver funds tend to diversity their risk over hundreds, if not thousands of securities, and across different types of investments.   

“This helps to ensure the long-term portfolio performance through market cycles,” Boyle said.    

[1] BT Funds Management (NZ) Limited is the investment arm of Westpac New Zealand. 

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