Ethical Investing 101: the financial adviser speaks

If you want to invest your money in line with your values, there are a growing number of ways to do that – managed funds, superannuation funds and other investment products. But if you want investment advice and a strategy that’s tailored to you, you can always go to an investment adviser.

Louise Edkins, director, Ethical Investment Advisers

There are a number of ethical investment advisers in Australia – the Responsible Returns website, run by the Responsible Investment Association Australasia can start you on the path. Audacious Investing recently spoke with Louise Edkins, the director of Brisbane-based financial planners Ethical Investment Advisers, for her views on how you can find the right ethical/responsible solution for you.

To start off with, Louise points out that her clients are most concerned with fossil fuels and climate risk, avoiding gambling stocks and avoiding companies with poor corporate ethics while investing in companies with strong corporate ethics, and investing in renewable energy.

“We have a questionnaire that looks at different issues and whether they want to screen them out, screen them in, or if they’re neutral on that issue,” Louise says. “A lot of our clients are very strong on what they want to invest in. We tend to ask them what are the three most important things they want to invest in, and we can reflect their concerns in the way they want to invest. A lot of investors don’t just want to exclude, they want to be part of the solution – they’re planet solution focused, rather than just excluding.”

Investing to avoid the impacts of climate change or to invest in assets designed to adapt and mitigate to climate change is a “huge one” for Louise’s clients.

“Climate risk will have a big impact on performance on the longer term, and so many companies are not ready or have even factored in and planned for the climate risk,” Louise says. “Another issue around corporate ethics are wage issues – a lot of companies have been outed for not paying proper wages to employees in franchises – Domino’s Pizza, Retail Food Group [owner of Michel’s Patisserie and Donut King among other franchises] and their share prices have plummeted.

“On the positive side, there is more coming onto the market in renewable energy infrastructure, as well as affordable housing, which another investment option that’s coming to the fore with the federal budget and the announcement on incentives for affordable housing.”

If you’re thinking about a tailored investment solution such as one that a financial adviser can provide you for a fee, Louise suggests that you have a nest egg built up through savings in a superannuation fund or elsewhere.

“If you have about $50,000 to $100,000 saved up, you can think about diversifying into some more ethical investment options,” she says. “Before that, you might want to look at something like a Future Super or an Australian Ethical managed fund for that kind of money.”

A financial planner will design a mix of assets for you that are tailored to the risk appetite you have – that is, your ability and desire to invest in assets that are riskier, or require a longer term time horizon to provide potential return.

“A financial planner has to reflect a client’s risk profile, and that means for most people, a combination of fixed income, shares, and property,” Louise says. “There is a lot of investment in fixed income – green bonds, sustainable bond funds, small bank hybrid securities. In property, there are some great property trusts with strong sustainability features – medical property structures, childcare trusts, etc.”

One thing that Louise strongly encourages people to be aware of is greenwashing – products that appear to be ethically oriented, but aren’t necessarily so when you look at the underlying stocks or bonds.

“We see it all the time,” Louise says. “It’s a product of big fund managers having a product and marketing people putting a spin on it to make it attractive to the ethical investor, in our mind. It’s hard for the retail investor to know what is true to label.