Welcome to Finance & Fury, the ‘Say What Wednesday’ edition, where every week we tackle questions from you guys. This week the question comes from Jason;
“My question is about investing with an Environmental, Social and Governance (ESG) / Ethical investment focus.
Given their increasing popularity, do these types of investments have the potential to make the world a better place?
Historically how have ESG/ethical investments performed in Australia relative to the market and what factors should be considered before investing in this space?”
Today we discuss;
- What are Ethical Investments, and how do they work?
- Inclusionary v exclusionary managed funds; what types of companies are excluded when making their investment decisions, and what types of companies are included?
- The difference between ‘Supporting’ and ‘Forcing’ when it comes to the way managed funds impact the underlying investment companies’ practices and what this might mean for you as an investor.
- What to consider when buying these types of investments.
- Do they actually meet your definition of ethical? You’d be surprised at some of the companies that are actually ‘recognised as a responsible and ethical investment option’
- How diversified are you?
- The performance of these (like all ETFs/managed funds) depends on the underlying performance of the companies that they buy.
- How have ethical investments performed for the past 12 months? Over the long term?
- The impact of thematic trends
- Historical returns
We talk about how these types of investments have the potential to make the world a better place, but the pros and cons are not what you might think.
- Supply drives demand
- Investment losses due to trying to change companies ‘for the better’