Seeking out the best ethical investments

By Dr Stuart Palmer, Head of Ethics at Australian Ethical

How hard could it be for an ethical investor to tell the difference between good and bad companies? Simply replying that 'it's complicated' is sure to encourage scepticism.

The ethics

We've had the same clear starting point for our investment decisions since the company began in 1986 – our Australian Ethical Charter. The Charter (summarised in the image below, or see the full version here) lists 12 things we will support and 11 harms we will avoid when investing.

The Charter is worth a read for those who worry that core ethical principles are volatile, inconstant things. Thirty years on, the Charter principles still resonate strongly with most who read them today; it supports such things as sustainable food production, endangered eco-systems and the alleviation of poverty, and avoids harms such as waste mismanagement, militarism and discrimination. Boiling it down, the Charter guides us in how we can best help people, animals and the environment and avoid causing unnecessary harm.

What we like

The first question we ask is whether a company's activities support one or more Charter 'positives' – a prerequisite for investment by us. This guides us to companies operating in areas such as clean energy, sustainable products, medical solutions, innovative technologies, responsible banking, healthcare, aged care, recycling, and energy efficiency. This type of ethical investing focusses on areas of the economy which through their positive impact have strong long-term growth potential.

What we don't like

After looking at the positives, we examine the negative impacts of a company's activities. There are some 'no-go' areas which will automatically rule out investment, such as manufacturing weapons or cigarettes. But there are also things that although we don't like we may tolerate if they are a small part of the company's business or if they are a necessary side-effect of a positive activity of the company. This is where things can become complicated.

Opening the floodgates?

Sometimes people worry that by balancing a company's positive and negative impacts, we could open the floodgates to all sorts of questionable companies. This is a valid concern, and we recommend that investors conduct a reality check when looking at any ethical investment option, by comparing the investments of that option compared to the investments of a 'mainstream fund'. As one indicator of the rigour of our process, we assess only about 30% of the ASX top 200 companies to be acceptable for investment under our Charter. That's a lot of things we won't invest in...

Read the rest of this article on the Australian Ethical 'Good Money Blog.'

Dr Stuart Palmer continues to explain the financial decision after a company 'passes the Ethical Charter', and illustrates balancing the positives and negatives with a case study. You can also find the list of who they invest in.

Australian Ethical are a major 1 Million Women partner.

They offer Super, Retirement and Managed Investment products that create positive change.

1 Million Women is more than our name, it's our goal! We're building a movement of strong, inspirational women acting on climate change by leading low-carbon lives. To make sure that our message has an impact, we need more women adding their voice. We need to be louder. Joining us online means your voice and actions can be counted. We need you.