When it comes to investing, everyone seems to have gone green these days, which is great given the challenges ahead, but it can be hard to know who and what to believe, especially in the high-stakes world of finance. And given that money, our money, is probably the biggest lever we can pull to truly impact climate change, it’s best we all get up to speed with investment industry definitions to ensure no one falls prey to a greenwash bandwagon.
The Magnitude of Superannuation
Across Australia, $3 trillion is invested through super. Australian Ethical calculated that if everyone put their super into a climate-friendly fund, versus one that was not, it would be the equivalent of reducing our annual carbon footprint by around 78 million tons of carbon (CO2e) or removing 16.9 million cars from the road (nearly all the cars in Australia).
Of course, that doesn’t mean that stopping to invest in non-climate-friendly companies will remove their emissions overnight, but it does send a strong signal which can drive a positive change in their behaviour.
Making our Money Matter
The demand for ethical investing is growing massively as people realise the power of their money, but still only a fraction is invested sustainably, so moving our money could create an enormous collective difference.
What is Greenwash?
Greenwashing is when a company or organisation presents itself as more environmentally friendly than it really is and isn’t really focussed on minimising its environmental impact. In finance, we see it when funds are rebadged as ‘green’ without changing the underlying investment philosophy. For example, some funds that are marketed as ‘sustainable’ or with an ‘ESG’ badge, still invest in businesses that have very high carbon emissions. It’s becoming a substantial concern for the financial industry as ESG investing becomes more popular.
How to Choose a Climate-friendly Fund
Because there is nothing stopping a fund from claiming that it’s ‘ethical’ or ‘sustainable’ it’s important to ask the right questions. Customers should demand transparency, with clear simple information. For example, how rigorously does the fund screen companies it considers for investment? Are you aligned with its investment policy? Does the whole fund follow an ethical investment approach, or just one or two of its investment options?
It’s also important to keep an eye out for funds that make misleading or exaggerated claims about their impact. Look for a history of sustainability reporting and quantified impact claims.
The Responsible Investment Association Australia has a website to help check:
www.responsiblereturns.com.au and www.marketforces.org also analyses where super funds are invested.
Don’t Forget Investment Performance
The good news is that sustainable funds have been performing amongst the best of any funds, and funds like Australian Ethical that have been around for a long time demonstrate a long track record of strong performance.
Lockdown could be a good time to get your finances in order and fund the future you want to see!
Australian Ethical is Australia’s original ethical investment company, offering both super and managed funds; investing for positive impact for people, planet and animals, and delivering a track record of market-leading returns. Make your money matter! www.australianethical.com.au
*This is general information only and does not take account of your individual investment objectives, financial situation or needs. Before acting on it, consider its appropriateness to your circumstances. You should consider seeking advice from an authorised financial adviser before making an investment decision. Past performance is not a reliable indicator of future performance.