Investment choices can support positive change

When the Intergovernmental Panel on Climate Change (IPCC) released its latest report, it made headlines globally. No surprises there – the report pulls no punches on the need for urgent climate action.

As individuals we can feel powerless to bring about large scale change even though we may be doing our bit on a personal level by making eco-friendly choices.

As investors however we can collectively carry real clout, and demand for ‘responsible’ investments is growing rapidly.  An industry report shows there is now a total of $1,149 billion held in responsible investments in Australia. That’s over one-third of the value of the total managed funds market.

‘Responsible’ investments look for opportunities that embrace environmental, social and governance (ESG) criteria that benefit people and the planet. That can include opting for investments that support the environment such as renewable energies, or screening out negative industries like, say, tobacco or gambling. A survey by the Responsible Investment Association of Australasia (RIAA) found consumers are especially keen to avoid investments associated with fossil fuels, human rights abuses and armaments.

The good news is that responsible investing doesn’t have to come at the cost of strong returns.  The RIAA found Australian share funds with a responsible focus dished up 10-year returns averaging 9.0% annually compared to the market returns (as measured by the ASX 300) averaging 7.8% each year. It’s a similar story with international responsible investment funds, which have achieved long term returns above the market average.

If you’re keen to invest in a way that supports the planet – and your own views on issues like social responsibility, there is a range of options to pick from.

A growing number of super funds offer responsible investment choices. There’s also a broad selection of exchange traded funds (ETFs) dedicated to sustainable investments including some that focus on overseas markets. Just be sure to take a close look at what the ETF is really investing in so you can be confident the fund’s underlying investments are among those you would choose to invest in personally.

Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.