Ask An Adviser - How Do I Make Sure My Investments Are Ethical?

Top answer provided by:

Jordan Vaka

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Sasha, I’m happy to say you are a part of a growing movement amongst investors who want to ensure their investments align with their personal values and priorities.

The good news is that there have never been more options and possibilities for people to craft an ethically aligned portfolio.

The bad news is that there’s no single, widely accepted ethical stamp of approval, so there is a bit of work you’ll need to do to make sure your investments don’t contribute to the fossil fuel industry.

But it is possible to make sure not a single dollar of yours is supporting the fossil fuel industry.

You can do this directly yourself – there are plenty of convenient and reputable options out there for direct investors – or you can do it via a third party, like a financial adviser.

As a financial adviser, I’ve thought a lot about how to best integrate ‘ESG’ (Environmental, Social, Governance) principles in my client portfolios, because it can be a complex landscape to navigate.

It’s complicated for a few reasons:

-Everyone’s ethical priorities are individual and different.

-There’s a difference between not supporting one sector you feel is damaging (what I call the ‘do no harm’ side) and supporting another sector you want to encourage (the ‘do good’ side of the ethical coin).

-The world of ESG is a lot bigger than what I always thought it was. I used to think it was simply no more coal mines - how wrong I was!

So when I’m helping people with their investment portfolio, there are a few steps we work through to make sure they’re proud of the investments they hold. 

1. Identify Your Priorities
   
   Obviously, keeping your money away from fossil fuels is a key priority for you.
   
   But the ESG spectrum is a lot broader than that, and incorporates other decisions about child slavery, water security and access, agricultural practices, armaments manufacturers and tobacco companies.
   
   Which can sound overwhelming – where to start making ethical financial decisions! – but thankfully there are some absolutely cracking tools out there to help with this stage.
   
   For instance, in my practice we use the Impact Assessment quiz to help people find their own answers to these questions.
   
   
2. Find Investments That Fit
   
   Once you’ve identified what’s most important to you, the next step is to start looking for investments that align with those priorities.
   
   Now, that can be as simple as finding a managed fund that fits, or as complicated as creating a bespoke portfolio of individual companies on the stock exchange.
   
   This isn’t easy, I should say, if only because of the level of ‘greenwashing’ going on in the investment industry. This is the frankly sneaky practice of, well, lying about just where an investment fits in the ESG world – to attract more investment from well-meaning investors.
   
   This complexity might mean you’d benefit from seeing a financial adviser to help you out.
   
   
3. Build Your Portfolio (Without Forgetting the Basics)
   
   Now, just because you’re investing in ‘ethical’ investments doesn’t mean the basic tenets of good investment practice don’t apply.
   
   You should still invest with clear goals in mind.
   
   How your assets are allocated across the different asset classes is still vital.
   
   Not putting all your eggs in the one (albeit ethical) basket is still a bad idea.
   
   Fees are still relevant, as are future performance prospects.
   
   All of these fundamentals remain critical – the only difference is that your ‘universe’ of assets you’re choosing your portfolio from is a bit smaller, because you’re filtering out the investments that aren’t in line with what’s important to you.
   
   
4. Read the Reports
   
   In my career, I’ve had a handful of people read the reports they get from their fund managers and investments.
   
   Not with ethically minded investors.
   
   Because they can be so proud of what their investments are doing and supporting, they love reading the reports! So, I encourage people to do that – read about the good your money is doing, about the projects they’re supporting, about the difference it’s making.
   
   Investing can be tough – so being reminded of the good parts is no small thing!

Sasha, I hope this is helpful for you as you start aligning your portfolio with your ethics and beliefs.

Don’t let the lack of a single stamp of approval worry you – it’s easier than it’s ever been to identify, design and invest in a portfolio exquisitely tailored to your ethical priorities.

Best of luck!

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Jordan Vaka

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