Responsible investing: using our money for positive change
If you are becoming increasingly frustrated by governments’ inaction on climate change and the environment, you are not alone.
A report by The Australia Institute found that a growing number of Australians are concerned about the effects of climate change, with over 80% supporting an end to coal fired power stations and a greater reliance on renewables. Even the Queen has complained about politicians just talking and not ‘actually’ doing anything.
But rather than feeling defeated, we can use our money to get the message across. After all, as the old adage says, money talks.
Responsible investing is making waves across the finance industry, prompting businesses to become more ethical and sustainable.
Issues such as the COVID-19 pandemic, the destruction of Indigenous cultural heritage, and the effects of climate change—like the recent extreme weather events—have ignited an increased interest in, and awareness of, responsible investing.
Responsible investing, socially conscious investing, sustainable investing, or environmental, social and governance (ESG) investing all refer to the same basic idea. And they all sound great, but what do they mean?
Responsible Investment Association Australasia (RIAA) defines responsible investing as ‘investing which factors in people, society and the environment, along with financial performance’.
When we think of investing, most of us think of the returns: the money we will make from our investments. Money goes into our superannuation account, and hopefully, there’ll be a lot more in there by retirement. So, basically, we want to make money, not lose it.
However, imagine if you discovered the companies your money is invested in were using child slave labour, or that your superannuation was supporting wide-scale deforestation, or even funding arms distribution to groups committing crimes against humanity. A horrifying thought, but there are ways to ensure our investments are doing good, not bad.
There’s been a common misconception that returns from investments in ethical funds are lower than those from regular investments. That is, you can’t do good while also making money.
Yet RIAA suggests ethical investments outperform regular investments exactly because of the responsible manner in which a company manages their environmental, social, and governance (ESG) issues.
Divesting from unethical companies sends the message that their business practices are unacceptable. Conversely, putting our money into ethical companies supports their strive for positive social and environmental change. RIAA notes that initially, responsible investing focused on avoiding harm. Now, however, it is engaged in a positive impact.
Fortunately, many businesses are now rated according to their responsibility performance, making information and comparisons more transparent.
RIAA has a list of financial advisers that can ensure our investments focus on ethical companies. An RIAA initiative, Responsible Returns, provides a tool to find super funds that fit our ethics and preferences.
This new era of responsible investing is mandating ethical and sustainable business practices. We are using our money to do the talking, and governments and businesses are starting to listen.
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Australia’s Future Fund invested in weapons manufacturers that have sold arms to Myanmar military. https://www.theguardian.com/australia-news/2021/nov/29/australias-future-fund-invested-in-weapons-manufacturers-that-have-sold-arms-to-myanmar-military
Responsible Investment Association Australasia. https://responsibleinvestment.org
Responsible Returns Investment Tool. https://www.responsiblereturns.com.au
The Australian Institute. https://australiainstitute.org.au/post/all-time-high-of-75-of-australians-concerned-about-climate-change/
The Queen condemns ‘really irritating’ world leaders for snubbing Glasgow climate talks. https://www.smh.com.au/world/europe/the-queen-condemns-really-irritating-world-leaders-for-snubbing-glasgow-climate-talks-20211015-p5908k.html