Ethical investment can be defined in multiple ways and is somewhat synonymous with various alternative labels. The phrase “ethical investment” can be used interchangeably at times with others such as “socially responsible investing”, “impact investing”, or “sustainable investing”. For our purposes here, we define ethical investment as an investment that ‘considers social, environmental, ethical and financial dimensions altogether.
Responsible investment is by no means a new phenomenon. The last few decades of the 1900s saw the sector grow into its own as a legitimate vehicle for change. By the end of the 20th century, conscientious investors were well versed in decision making which avoided financing businesses relating to the waging of war, destruction of the environment, and the unethical exploitation of labour. Most recently, however, as one might safely assume, responsible finance has been geared towards combating the climate crisis.
In the Australian context, responsible investment has recently undergone an explosion. In Australia and New Zealand, between 2014 and 2016, the total value of responsible investment assets climbed from AU$148 billion to AU$516 billion- an increase of 248%. In Australasia, as of 2018, ethical funds made up 63.2% of all managed assets. Globally, between 2006 to 2017, the increase has been even more significant, with the total value of managed responsible assets climbing from US$6.5 trillion to US$68.4 trillion.
At face value, the popularity and rise in the perceived value of ethical investing are obvious. One might ask the question, though, “at what cost?”.
Traditional finance theory predicted at the outset that opting for ethical investment choices would infer a cost, and that sounds reasonable. Who could be blamed for assuming that their money was already being invested in the most optimal way, and that to alter this would have consequences? Fortunately for investors, the present reality and widely accepted consensus are that not only does ethical investment incur no additional cost to the investor, but amongst Australian funds, it outperforms traditional modes of investment over the short, medium and long term. Internationally, ethical funds outperform their counterparts over the short and medium term but are outperformed over the long term.
In Australia, not only are ethical investment funds now outperforming indiscriminate funds, but ethical funds are becoming increasingly geared towards active investment in projects and enterprises which directly bring about reductions in carbon emissions or otherwise contribute to averting the climate crisis.
Despite speculation that the current momentum enjoyed by ethical investment might generate a “bubble” of sorts, the United Nations Intergovernmental Panel on Climate
The change recently declared that an annual investment of US$2.4 trillion per year will be required until 2035 (at least) in order to avoid the worst impacts of the climate catastrophe, signalling a great capacity for growth in ethical finance yet.
Overall, as Australia is so well positioned as a future renewable energy exporter and potential world leader in a revolutionised, green economy, the outlook for ethical investment looks positive. If you would like to learn more about how you can get involved with ethical investing yourself, check out our upcoming events here and sign-up for our mailing list here. You can also download the Bloom app if you're ready to start your Climate Impact Investing journey.
The information on this website is prepared by Bloom Impact Investment Services Pty Ltd (ACN 651 965 098 AR 001294778), who is an authorised representative of Cache Investment Management Pty Ltd (ACN 624 306 430 AFSL 514 360) (Cache). Bloom’s financial products are issued by Melbourne Securities Corporation Limited (ACN 160 326 545 AFSL 428 289), as disclosed in the relevant PDS. All information provided in this article is general information only and does not take into account your personal circumstances, financial situation or needs. Before making a financial decision, you should read the relevant product disclosure statement and target market determination consider whether the product is right for you and whether you should obtain advice from a professional financial adviser.