The Six Stages of Ethical Investment Awareness

The six stages of Ethical Investing Awareness

At Moneyworks, we are undertaking our international certification and education to become 'ethical/responsible/sustainable' advisers.  Part of this is understanding the different 'claims' to ethical investing (which I will use as a catch all for all the terminologies).

Fund Managers start off doing nothing about ethical investing, then migrate to 'ESG integration', where they start understanding what 'non-ethical/responsible/sustainable' investments they hold in their portfolios.  This stage involves recording the exposure, and may or may not involve active decisions to 'dis-invest' or invest based on the ESG factors.  (ESG = Environmental, Social and Governance).

The third stage of becoming an ethical investor is to begin 'negative screening' of investments - so excluding investments with exposure to weapons manufacturing for example.  New Zealand has laws that require most of our fund managers to exclude certain investments.

We are aiming to develop ethical portfolios over the next year for our clients that want an ethical approach, whereby the fund managers focus on the next step, which is 'positive screening'.  This is where investments for the portfolio's are chosen BECAUSE they are ethical, responsible or sustainable.  There are a number of funds that are focussing on this area in Australasia, and we are starting our research into how well they have performed and how they would fit into our clients portfolios.

Impact Investing involves the next iteration of ethical investing. This approach involves making investments that will make an real positive impact on society.  These are generally private equity funds, but some of our funds managers are starting with individual investments within their portfolios (see the article below about the Generate impact investment in 118 houses for the Salvation Army).

The final type of ethical investing is pure philanthropic investing, which doesn't really work in a long term investment strategy for our clients.

Ethical Investing is is a rapidly developing area of investment analysis and is very detailed, as there is a lot of 'greenwashing' (that is, companies saying that they are engaging in ethical behaviour when they aren't.)  It will be a long process of analysis and discovery for us, but we are excited about it and about sharing the information and investment recommendations with you.


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