Ethical investment funds have gathered steam in the last few years. But when we interrogate it, what’s considered ‘ethical’ in investing can be subjective.
Despite the term, ethical funds require a funds management company to select what they consider to be ethical. So if you’re looking for an ethical fund in which to invest your money, it’s important to be careful, and read what their underlying investments are.
In this article we look at what ethical investment funds actually are, and take a quick look at the top-performing ethical funds for 2021.
[content_aside]Liston Newton Advisory can work with you to make ethical investing part of your investment strategy. Get in touch to book your free investment strategy session to find out more about what this can mean for your financial plan.[/content_aside]
So, what is an ethical investment fund?
Ethical investment funds are those that prioritise environmental, social, and governance (ESG) considerations in their investment options, while still delivering positive returns for their investors. What makes them ethical is that they aim to exclude industries that are considered as doing harm, or are unethical in their actions. This generally includes industries like mining, fossil fuels, gambling and tobacco, or weapons manufacturers.
Ethical investment funds are designed to have a positive impact on the world. by promoting more sustainable and positive choices
Why do people choose ethical investment funds?
Ethical investment funds enable you to feel better about where your money is going. You know that it’s only being invested in those industries that you agree with. It’s not going towards damaging the environment or promoting practices that go against your values
So if you’re value-driven, an ethical investment fund can be a good option.
Ethical vs sustainable investing: what’s the difference?
Ethical and sustainable investing are two sides of the same coin. They both aim to promote better choices in the world, and put money into companies that demonstrate positive actions. However, there is a key difference.
- Ethical investing focuses on companies that do good socially. They will avoid or screen out companies that, for example, promote gambling or tobacco use.
- Sustainable investing aims to promote companies that deliver a long-term positive impact for the earth, or companies that demonstrate significant initiatives towards sustainable policies.
Which ethical investment fund is right for me?
Ethical and sustainable ETFs are also gathering steam on the Australian market. As such, there have been some positive returns seen for ethical funds in the last year.
Here are the top-performing ethical investment funds of 2021, based on their performance over the past year.
However, what may be right for you depends on your financial goals and ethical preferences. This list is simply a statement of how these funds performed, and where they invest. If you decide that one of these funds is right for you, we encourage you to perform your own research before you make a decision.
eInvest Future Impact Small Caps Fund (IMPQ)
This ETF is known to invest in Australian and New Zealand listed stocks that have a positive contribution to environmental and societal issues. Its overall aim is to deliver capital growth over the long term.
Invests in: listed Australian and NZ Small and Mid Caps
Betashares Global Sustainability Leaders ETF – Currency Hedged (HETH)
This fund active excludes companies that are engaged in activities that go against ethical investing considerations, so you won’t find any fossil fuel companies here. Their portfolio includes a stable of stocks that they consider ‘climate leaders’. The fund itself is hedged to the AUS dollar, with the aim of minimising currency fluctuations on any returns.
Invests in: predominately international tech and fintech companies
Intelligent Investor Ethical Share Fund (Managed Fund) (INES)
This fund provides a diversified selection of Australian company stocks. It puts a focus on companies that have a low risk of being interrupted by external threats. 2021 has seen it deliver sustainable profits, while focusing on sustainable investments.
Invests in: Australian equities and cash
Russell Australian Responsible Investment (RARI)
This ETF provides exposure to a responsible investment portfolio by investing in ethical shares and trusts on the ASX. The fund itself has voluntarily committed to the UN’s 6 principles of responsible investment. It’s weighted strongly at companies that are actively demonstrating their ESG considerations, and seeks to actively screen out companies that clash with ethical investing ideals.
Invests in: banking, real estate, and utilities
SPDR S&P/ASX 200 Esg (E200)
This fund aims to closely match returns seen from the S&P/ASX 200 ESG, a responsible investing index, which is an ethical and responsible alternative to the ASX 200.
Invests in: almost exclusively Australian equities
Vanguard Ethically Conscious International Shares (VESG)
This fund enables you to diversify your ETF into international companies. It provides access to those listed in major developed countries, but does so in an ethical and sustainable manner. It actively screens out sectors such as mining, fossil fuels, tobacco and gambling, and nuclear power.
Invests in: predominately technology, consumer discretionary, healthcare, financials, and industrials
VanEck Vectors MSCI Australian Sustainable Equity ETF (GRNV)
While not delivering returns as high as we’ve seen, this ETF is still performing well. When investing in this fund, you’re gaining access to a diversified portfolio. It focuses on Australian companies, screening them using world-leading research to ensure only ethical companies are invested in.
Invests in: predominately materials, financials, real estate, industrials, health care
VanEck Vectors MSCI International Sustainable Equity (ESGI)
Similar to the Australian option, this fund focuses on ethical investments but on the world stage, in exchanges in developed markets. Companies that are known to derive their revenue from fossil fuels, oil & gas, or other similarly unethical activities are screened out.
Invests in: tech, consumer goods, financials, healthcare
Vanguard Ethically Conscious Australian Shares ETF (VETH)
This ETF invests in ASX-listed stocks. Like the other funds in this list, it screens out companies that have significant businesses activities in nuclear power, fossil fuels, tobacco & gambling, and weapons manufacturing. They also screen companies against controversy, making it a somewhat more reactive fund.
Invests in: financials, materials, healthcare, industrials, real estate, consumer discretionary
The final word
So as you can see, ethical investment funds are making headway in the market. They’re providing strong returns—while at the same time demonstrating a change in how people invest.
For those looking for investment options that they know will avoid promoting environmental damage, social issues, and morally grey areas like alcohol and gambling, ethical investment funds are a good option to consider.