In recent years, a new trend has begun to take hold in the financial world. While traditional investments have mainly sought to maximise return on investment, more investors are choosing investments based on their personal values — placing just as much emphasis on the positive impact an investment has on society as the amount of profit that can be made from it.
That’s where the eInvest Better Future Fund (Managed Fund) comes in to provide a way for investors to invest in green and ethical investments. This new approach to investment is known as sustainable investing, ethical investing or socially responsible investing (SRI), and it’s increasingly popular among younger, more socially conscious investors.
Sustainable investing could mean investing in individual companies with a proven positive impact, such as renewable energy firms, or buying a financial product specifically designed with sustainable investing in mind, such as the eInvest’s Better Future Fund (Managed Fund).
What exactly does sustainable investing involve?
Sustainable investing primarily focuses on investing in products that promote beneficial environmental, social and governance (ESG) outcomes. ESG outcomes cover a broad spectrum of positive impacts, such as promoting cleaner energy to slow the effects of climate change, reducing global poverty and hunger, and increasing access to healthcare.
By focusing on these outcomes, sustainable investments allow investors to put their money into creating a more sustainable future at the same time as receiving a positive return on their investment. There are two main approaches to sustainable investing, these being:
- Negative ESG screening.
- Positive ESG screening.
A great example of this type of investment is provided by eInvest through their ASX code IMPQ product that targets specifically long term capital growth whilst maintaining that socially minded behavior.
Negative screening involves excluding companies from your portfolio that do not match your personal values. For example, you might seek to steer clear of energy companies failing to commit to renewable energy sources. Or, you may want to refuse investing in controversial weapons manufacturers if you disapprove of how their products are used.
Negatively screening your investments helps investors to avoid putting their money into investments that are hindering a sustainable future. Positive screening, on the other hand, is a more active approach.
Rather than merely avoiding investing in companies or products with negative ESG outcomes, positive screening involves actively investing in a portfolio of companies and organisations that promote positive ESG outcomes.
This means you can actively contribute towards promoting positive social impacts and a more sustainable future. For example, the IMPQ product proactively surveys Australian companies to maintain control of their ESG standards.
What are sustainable ETFs?
Sustainable ETFs offer an ideal method of sustainable investing by allowing you to invest in a wide range of companies, organisations and products with positive ESG impacts with a single purchase. An ETF, or exchange-traded fund, is essentially a bundle of securities that is traded as a single unit in much the same way as you would buy and sell individual shares.
Different ETFs are designed with different objectives in mind. For example, an index ETF is based on a specific index and tracks its performance, fixed income ETFs invest in corporate bond securities, and some ETFs even specialise solely in emerging markets. Sustainable ETFs focus instead on assets that deliver positive contributions to society and the environment.
Therefore, sustainable ETFs offer an opportunity to quickly and easily invest in a diversified portfolio of socially beneficial securities with a single purchase. Many of these are active ETFs or actively managed ETFs, meaning that the investment manager will actively buy and sell assets within the fund to ensure the highest return on investment as well as the greatest positive impact.
For example, the eInvest Better Future Fund (Managed Fund) is an Active ETF which invests in Australian companies considered to be highly sustainable with positive ESG impacts, such as those generating renewable energy, contributing to social welfare outcomes and supporting better healthcare provision. This also involves the fund manager actively engaging with the companies in question in order to further promote sustainable business practices.
The benefits of sustainable ETFs
Sustainability ETFs hold a number of advantages over individual investments. First and foremost, they offer an ethical, diversified investment with a single purchase, as opposed to having to build up a portfolio of socially responsible investments one by one. This makes it easier to support a wide range of global sustainability leaders with a lower initial investment.
Since they are inherently diverse, ETFs also have the general advantage of being a more stable long-term investment than individual stocks. While individual stocks within the fund may fall, this can be cancelled out by the rising value of other securities, leading to a more consistent return on investment compared to the volatility of trading individual stocks.
Compared to other investment funds like mutual funds, ETFs are generally more easily traded. So, if your financial situation changes you can easily sell your ETF units to quickly access cash in an emergency.
Outside their financial benefits, a socially responsible ETF also has advantages over other sustainable investment methods. Rather than having to research a number of different companies yourself to see if they match your values, you can find an ethical ETF that shares your priorities, and trust the fund manager to invest your money into various ESG leaders for you, saving a lot of time and effort on your part.
Sustainable ETFs are also steadily increasing in number, offering a wider range of options as they do. This means you have the option to invest broadly with ETFs that track a variety of highly ESG-rated companies, or make a more focused investment with ETFs that specialise in a given sector, such as a clean energy ETF that specifically invests in low-carbon companies and global clean energy producers.
In summary, sustainable ETFs offer socially conscious investors a quick and effective opportunity to invest in a wide range of companies with positive ESG impacts. Sustainable ETFs offer a stable, long term investment with relatively low risk, at the same time as allowing you to put your money into companies which will make a real contribution to building a brighter, more sustainable future.
Disclaimer: Please note that these are the views of the writer, Camilla Love, Managing Director at eInvest and is not financial advice. Past performance is not a reliable indicator of future performance. To find out how to invest in our active ETFs, visit here. The product disclosure statements and more can be found at www.einvest.com.au. If you’d like to keep learning further, listen to this podcast about sustainable ETFs and please feel free to follow any of our socials listed below.