Principles can be profitable

Australian investment in responsible and ethical investment portfolios has grown at a rapid pace in recent years, as Australian investors are increasingly adopting environmental, social and governance (ESG) criteria in their portfolios.

Because everyone’s individual perspective on sustainability and ethics is different, understanding the screening process and having transparency of holdings is key to knowing whether your investment is truly ethical or not.

Without having full insight into the investment portfolio, it is possible that you are taking on the portfolio manager’s own value biases and as a result holding exposures that may not meet your definition of “ethical”.

We’re finding in our business that ethical investors particularly value the benefits of transparency that comes from investing in exchange traded funds (ETFs). With an ETF, an investor is able to view the full portfolio holdings of a product daily, which means no surprises when it comes to the underlying holdings in the fund.

If you’re looking for a “true-to-label” socially responsible fund, an understanding of the screening methodology that the portfolio manager applies will help you understand if the fund you are considering matches your values.

Exclusionary screens are designed to remove stocks that are exposed to a range of harmful industries and activities, leaving companies in the portfolio that operate with the values you support. For example, we’ve recently launched what we believe is the first global equities ETF in Australia that uses a broad range of screening criteria. It combines a positive climate screen along with a very broad set of ESG eligibility screens to remove companies involved in activities deemed to be inconsistent with responsible investment best practice.

No matter which fund you choose, it’s important that you fully understand the screens used and have insight into the exposures to make sure you can “profit from your principles”!