Do you have to sacrifice returns to invest responsibly?
I've talked with numerous people nearing retirement recently, and most said that they become acutely aware of two things as they come closer to retirement:
- how well they have (or haven't) planned for their financial future; and
- the kind of future they are building for their kids and grandkids.
You don't have to choose between planning for your own future and that of your kids.
Many of us don't think about one of the biggest ways to accomplish both: your investments.
At more than $2.2 trillion, the money managed by Australian super funds is bigger than Australia's GDP.
If you think about it, that kind of purchasing power is huge.
Collectively, the super industry is one of the largest shareholders of the ASX.
You're already investing your hard-earned money in super. Have you thought about whether that money is working for you to create the kind of future you want for your kids and grandkids?
You also can invest responsibly in other financial areas such as your shares and home loans.
On average, Australian households spend 14% of their gross weekly income on housing costs.
They also have $32.8 billion accruing interest on credit cards. That's a lot of money being invested in organisations that are making decisions about the world we live in.
You can decide whether your money is invested in ways that align with your values, such as supporting institutions dedicated to educating the next generation or finding innovative ways to use fewer natural resources. Conversely, your money could be supporting organisations doing the opposite.
A little research can go a long way if you don't already know where your savings and investments are going. Here are four factors to look for and questions you can ask related to each:
- Responsible strategies
Does your bank or super fund have a corporate responsibility strategy for how it runs its business? Does it also have a responsible investment strategy for the types of organisations it invests in?
You should be able to learn a lot about a company's strategies by looking at its website or at annual report. Look for tangible, measurable goals that commit to real progress on social and environmental issues.
The Responsible Investment Association Australasia website is also a good benchmark. It publishes its full member list and reports online, so you can look at how your super fund is performing.
- The right priorities
Does your bank or super fund support the issues that matter to you?
Find out if your investments match your values - whether you care about climate change, protection of the environment or helping your grandkids grow up in a world without human rights violations or other issues.
- Transparency
Can you find the answers to the above questions online? It's a red flag if this information isn't readily available.
Your super funds and banks are not required to disclose in detail where they direct their underlying investments on behalf of members. If you're with a super fund that doesn't report on the details of what it is doing, you won't be able to see if its investments align with your social and environmental values.
- Competitive benefits
Let's get down to it: do you have to sacrifice returns or benefits to invest in a responsible way?
The most recent Morningstar research shows that funds that are labeled "ESG" or "ethical" are generally more expensive than non-ESG funds.
There's also been a long-held belief that there is a financial trade-off if you want to invest in a socially conscious way. You shouldn't have to trade benefits or fees to invest in the ways you want.
Consider switching super funds if you are not happy with what you find or can't find what you're looking for.
While the thought of evaluating other options can be overwhelming, it doesn't need to be. You usually can change easily, and the potential positive impact is well worth it.
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