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Ethical investing should be on business radars

The rise of fintech has made investing more simple than ever and the housing affordability crisis has led to a lot of people, especially millennials, looking for alternative ways to grow their wealth. People are investing more and the rise of ethical investing shows that they’re becoming increasingly conscious of what they’re actually investing in. But what is ethical investing and do you even need to worry about it?

Ethical investing involves factoring in social and environmental factors when making investment decisions. It’s also known as responsible investing or sustainable investing and can apply to shares, superannuation or even managed funds.

So why does your business need to care about it? Because your customers do. More Australians are prioritising investments that align with their personal values, according to a July 2017 report by the Responsible Investment Association Australasia (RIAA).

The report found that “responsible investment” now constitutes over $622 billion worth of assets under management. This is an increase of 9% from 2015. At 44%, these investments are now close to representing half of all assets professionally managed in Australia.

CEO of RIAA Simon O’Connor said that Australians making ethical investment decisions are also reaping the rewards with strong financial performance.

“It is a long out-dated myth that financial returns must be sacrificed to invest responsibly or ethically. The performance figures and trends we are now seeing each year are telling us the opposite story,” he said.

And where there is demand, there will be supply. More companies are developing platforms to help Australians find investments that match their values and their beliefs.

“The market is recognising the opportunities to create value for clients, with a surge in responsible investment products over the past year, including many focused on delivering a positive social or environmental impact,” said O’Connor.

Micro-investment app Acorns, for example, launched an Emerald Portfolio to allow users to invest in socially responsible companies. Australian Ethical is another option for Australians who want to invest in super or managed funds.

The two main methods of ethical investing are through positive and negative screening. Positive screening involves selecting investments that align with your personal values, while negative screening involves excluding investments that do not. Common investments that are excluded include sectors such as gambling, tobacco, weapons or coal.

So how is ethical investing impacting businesses? Many businesses are now offering ethical investment options to their employees, for example, an ethical default super. Looking externally, if your business is currently listed on the ASX, or if you’re planning for it to be, you need to recognise the importance of transparency. People are now looking beyond the numbers when making investment decisions.

For your own business, think of how this attitude towards ethical investing could affect your industry. People care about what companies are doing and they care about where they are putting their money. How could this change the way your business is run, or how could you leverage it to get ahead?

About the author

Elizabeth Barry is the business loans editor at finder.com.au and has a passion for fintech, startups and innovation.

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Elizabeth Barry

Elizabeth Barry

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