Smart money goes GREEN

Many investors still view their money as separate from their own identity. They don’t think of their personal values or ethics when they are investing. They don’t realise that their money can actually improve the world, or alternatively cause harm to things they hold dear.



Just like the purchasing decisions you make every day, you also have a choice when it comes to how you invest your money. Indeed, more and more investors are realising that the financial value of an investment is just one consideration when assessing its worthiness. Savvy investors also want to know how companies they invest in minimise their environmental impact, treat their employees, respond to feedback or objections from shareholders, and how they interact with the local communities they operate in. The consideration of these issues and how they fit with your personal values is called ethical investment.



Ethical investment has several names, some people call it directed investment, others responsible investment. But the basic principle behind the concept is to enable you to integrate your personal values and social concerns with your investment objectives, using financially sound investments.



What ethical investors have been thinking for years has finally been proven by traditional finance houses. Research conducted by AMP Capital shows that over 75% of the value of a typical Australian company is tied up in unseen or intangible assets (as shown in the following chart). As the iceberg diagram shows, there is much more to consider than just the assets or financials of a company if you want a truly accurate valuation or understanding. An astute investor should also be asking about company’s environmental track record, employee relations and the remuneration of board members.



The iceberg effect



Investors want to stay ahead of 21st Century trends



Forward-thinking investors are also aware that their portfolio needs to be responsive to the various issues confronting the world in the 21st Century. Climate change and an ageing population are two important examples: others include unsustainable consumption of resources (like oil and water), the transition to a low carbon economy, global population growth, rising consumerism in developing economies and increasing healthcare needs. All of these issues are changing the way the companies, communities, employees, and consumers interact. Of course it follows those companies that fail to pay aWenion to these trends or fail to manage their intangible assets are likely to find less willing investors, thereby affecting their share price and ulimately performance. Conversely those companies that are making active steps to address these world issues will seize the opportunities which others are ignoring.



Which investments are more ethical?



Everyone has their own set of ethics, values and opinions. You decide what’s important to you. Say, for example, you are opposed to armaments, wood- chipping and alcohol, you would not wish to invest in companies involved in those industries. However, you might still be investing in them indirectly through your bank, superannuation or insurance bond. Issues that often raise concerns include arms, animal testing, alcohol, tobacco, gambling, chemicals, drugs, nuclear industry and pollution, as well as specific countries with repressive regimes.



If you want to actively support certain industries you might choose to invest positively, by investing in companies with affirmative environmental programs such as recycling, energy efficiency, and pollution control. You may also like to invest in innovative companies that are helping to solve the problems of the 21st Century: clean energy, water and waste management, healthcare, energy efficiency, sustainable property, agriculture, mass transport and education.



You can invest directly in a company that meets your ethical values. Alternatively, you can invest in a managed fund that follows a methodology which matches your ethical views and financial goals. It

is important to know however, that not all managed funds labelled as "ethical’’ will meet your ethical values. Ethical managed funds or investments come in various shades of "green".



Are you ready to start investing ethically?



Firstly have a think about what’s important to you. What do you believe in? Are you living a life that’s consistent with your beliefs and priorities? If not, how can you? You can start by investing your money in companies that have a positive impact on the environment and society. You can also avoid those companies or investments which cause harm. If you are interested in ethical investment, speak to a professional. A specialist adviser will be able to integrate ethical investment principles with conventional financial analysis. And importantly, your recommended portfolio will be tailored to your ethical values and concerns.





http://www.ethicalinvestment.com.au/