Yahoo Finance Are your investments unintentionally killing the planet?
There are hundreds, if not thousands, of available investment options all purporting to be sustainable, green and climate friendly.
But without an international standard, it can be tough to tell whether your investment is in line with your ideals.
As Market Forces legal analyst Will van de Pol told Yahoo Finance, consumers often don’t realise the potentially harmful ways in which companies are making money.
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“We are quite specific in our approach to researching companies and their impacts on climate change,” van de Pol said.
“Our research is mostly focused on Australian companies but also increasing Southeast Asia and international markets.”
Market Forces is a not-for-profit organisation that campaigns the major banks, superannuation funds and the government to ensure the companies managing people’s money aren’t also harming the environment.
Van de Pol said his organisation had observed a rise in organisations using a bit of trickery around their sustainability claims.
“We have seen an increasing number of companies, investment products, super funds and managed fund options, that are claiming to be sustainable,” he said.
“Many of these companies say that they’re on a ‘sustainable pathway’ and might have a long-term goal of being carbon neutral but in the short-term may be pursuing new fossil fuel ventures.”
The problem, van de Pol explained, is that even if a company isn’t creating the fossil fuels they may very well be financing those that do, therefore contributing to global warming.
“For a company to be taken at its word when it claims to be sustainable, it really needs to demonstrate that it is shifting its business model to one that is rapidly decarbonising at the rate which is required to make the climate goals set out in the Paris Agreement,” he said.
According to the Market Forces bank comparison table, Commonwealth Bank has loaned over $12 billion to fossil fuels since 2016.
Trailing close behind is ANZ, which has loaned over $10 billion to fossil fuels since 2016, with NAB and Westpac on $7.2 billion and $5.4 billion respectively.
The Responsible Investment Association has a number of tools available to find ethical investment products or financial advisers.
It also has a Responsible Returns tool, where investors can search for investment products, managed funds and exchange traded funds that have specific ESG focuses.
“One of the really useful things about these sorts of tools is that they can be broadened beyond just climate and fossil fuels,” van de Pol said.
“So, there is the opportunity for investors to look for funds or products that exclude fossil fuels as well as any other industries that don't align with them.”
It can seem like a daunting task to figure it all out at times, BetaShares senior investment specialist Cameron Gleeson points out, because there is so much information to scope through.
“It can be very tricky for individuals. For example, we go through companies financial statements to see if any of their revenue lines would be attributed to activities that we would screen out,” Gleeson told Yahoo Finance. “That can be difficult for an individual to do.”
Here’s what you can do
Gleeson said that if an investment or fund manager is managing your money for you, the best thing to do is ask questions.
“Ask what metrics they are using to decide whether the companies included in your portfolio are ethical; what are some of the issues they’re screening for or including,” Gleeson said.
“Then ask them whether those factors are absolute or whether it is just something they consider along with financials and everything else.”
BetaShares have a number of ethical ETFs available, and take a rules-based approach to determine which companies are included.
All the underlying stock holdings and the rules for portfolio construction are then published online daily.
“It’s all about transparency,” Gleeson said. “If your fund manager is not being fully transparent, say if they’re an active manager, that still doesn’t mean you can’t ask for the information.”
Russell Investments and UBS also offer ethical and sustainable ETFs with their own publicly-made approaches.
Australian Ethical Investment has it in the name, offering managed funds and a superannuation option.
Every Australian has their retirement savings being invested on their behalf by their super fund so it’s important to know where that money is going and if it’s in line with your ideals.
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