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Chapter 1: What is ethical investing and why is it important?
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Please remember that all of the information in this podcast episode is limited to general information only. That means the information is not specific to you, your needs, goals, or objectives. So you should seek the advice of a licensed and trusted financial professional before acting on the information.
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Chapter 2: How do you identify your personal values for investing?
And before you acquire or apply for a financial product, please read the PDS or product disclosure statement, which should be available on the issuer's website. Lastly, please keep in mind that past performance is not indicative of future performance. Kate Campbell, what's the definition of a long-term investment?
For me, it's at least 10 years, but I think for most people it would be 7 to 10 years invested in the product or the ETF or the share.
I'd say it's a short-term investment gone wrong. Yep.
Is this your joke for the day?
Yep. Okay. So this episode of the Australian Finance Podcast, you and I, the two of us, and every listener sitting along at home, listening, whether you're in the car on a commute, whatever you're doing, hello. And we are talking about ethical investing, how to do it, what it is, the ins and outs, whether Kate and I do it, controversial, and everything in between.
And we're doing this because we've just launched a new course.
Yes, a brand new free course. You might think that we've been launching a few courses this year, and that is true. We had the MyFire course, Financial Independence, Retire Early, come out a month and a half ago now. So that's had a really successful launch, and it's been really encouraging to see all the feedback there and some definite recommendations that we can include in the next version.
And then this month, it just sort of all tied together that we launched all the things around the same time we finally got our videographer organized so yeah this month we just launched our ethical investing course which was mostly done by Owen this time and yeah it's really about working out what your values are how you want to invest how to cut through all the noise and
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Chapter 3: What are the different strategies in ethical investing?
and the marketing and actually look at what's under the lid. So I guess we can talk a little bit more about the course further into the episode. But I guess the thing we want to start with, what is ethical or values-based investing? Because there is so many terms out there describing it. I mean, even just a few like ESG investing, ethical social governance.
So there's impact investing, negative investing, positive investing. What's your take on this, Owen? Because I know you did a big survey of our community last year about this.
Yeah, and that was mainly from the Investors Podcast. That's the other one, the yellow podcast that you might see in your podcast player. If you don't already, subscribe to that one. And actually, that brings us to a side note. Some of the feedback that we get on the podcast is sometimes we're not talking about the more advanced topics, if there are such things.
If you want advanced investing topics, you can go to the Australian Investors Podcast, where we have Australia's biggest and best investors on there.
Yeah, so that's definitely next level. If you've listened to everything here and you feel like you're ready to take your knowledge to the next level, yeah, tune into the Australian Investors Podcast, which is our more advanced version.
Yeah, that's it. So what is ethical investing? Max Wagner, former ETF analyst for us, he did some digging into this initially and then we kind of jumped on it together. And basically the way we compartmentalize the differences between the types of investing is this. So responsible investing is when you take into account really anything other than just profits and dividends.
So if you want to be responsible, that's the phrase that the industry applies. Responsible Investment Association, for example, is the name of the big organization in Australasia. If you want to be responsible, that's great.
But then within that, if you think about that as like this umbrella over the top, all the different types of ethical ESG investing, sustainable investing, socially conscious investing, impact investing, they're all under there.
So
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Chapter 4: What are positive and negative screens in ethical investing?
And at the other end, we have something called impact investing. And impact investing is the most extreme form of responsible investing. When you're impact investing, you're going for the maximum impact on the company. So if it's like a fossil fuel company, you might buy a lot of shares to try and influence that company's board when you have your next vote.
And at the other end where you have really no ethical filter, what we're talking about is basically just buying an index fund or like buying anything vanilla. And somewhere in the middle of that, somewhere between no filter at all and all the way up the other end, which is impact investing, which is that super green positive type thing, somewhere in the middle...
is ethical investing, I would say. And so ethical investing is about, and this is where the key distinction is, there's another key distinction here, which is ethical investing is about your internal compass. So what do you care about?
Whereas sustainable investing and socially aware investing, they're probably more on the left-hand side if you think of it like they're more towards the no filter kind of end. So they're just like sustainable investing is basically taking society's values or socially conscious values and Ethical investing is more about you. So you had a good example just before about smokers, right?
What was the example?
I was just sort of talking about if you've had an experience in your family where someone has passed away or got really sick from lung cancer, you might have really strong views about tobacco companies, whereas someone else who hasn't been affected by that might not have the same intense views about tobacco companies.
So they might still not like them, but they might not like them to a very different level. And then when you get companies that are putting filters over the top, sometimes they'll filter out tobacco companies, but then they might not filter out other companies that have association with tobacco companies.
So it can become really sort of complicated if you just use one basic filter, whether you're actually investing in the way you want to. So I guess one of the things that we talk a lot about in the course was actually working out what your own ethics are and your personal values. And I think it's just a process of teasing out
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Chapter 5: What are the top tips for ESG share investors?
what you want to invest in and what you want to be associated with and what's important to you. And I think that really adds to that sleep at night factor because you're comfortable with what you're investing in. And all those, all the different labels, they, some of them overlap. They sometimes are just versions of the same thing, but it's all about what works for you. And
Often if you just go with a company like an ETF that's an ethical ETF, they'll just put a basic overlay on it, a filter that might say, hey, we'll just cut out anything that's investing mostly in tobacco or forestry or whatever. Weapons or there's even some that like cut out gaming and things like there's really diverse array of filters.
So these filters might not align with your personal filters, which is sometimes the challenge of just a basic ESG filter on an ETF.
The challenge that we have, Kate, and there are a few things, we're going to jump into some myths in a minute, but the challenge that we have is the ESG, which stands for environmental, social, and governance. So those are the three big, I guess, factors that we look at when we're looking at studying companies or investments. So how does it impact the environment?
How does it impact society, like communities? Think of rural communities, think of cityscapes, et cetera. How does it impact the governance of the business? So How does it impact employees, stakeholders?
You know, if you looked at, say, a pokies company, a company that creates gambling, what they're actually doing is they have no impact on the environment, really, other than maybe greenhouse gases, which you might better say they put solar farms on the roof or whatever. But then society, what do they do for society? Well, indirectly, they target the lowest socioeconomic bracket.
Yeah.
And then what do they do for governance? Well, what are they actually doing for their stakeholders internally? And what are they doing for their stakeholders? And this edges on community and society is kind of like what are their actual consumers getting from this? So, you know, that's just an interesting way for us to look at things.
And what the important thing is, and this is my point, is that the market for ESG, like investments or ethical investments, sustainable investments, responsible investments, whatever you want to call it, it's still finding its feet. But I don't want to say that it's not good. I'm just saying that it's growing and it's at the early stages of growth.
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Chapter 6: How can you evaluate companies for ethical investments?
And I think that really correlates with the increase in us being more interested in whether the products we have are sustainable, whether they're organic.
The clothes we buy are actually paying the workers a living wage, whether the products we get, like if we're getting garbage bags now, I think we were talking with one of our colleagues this morning, do we go and get the green recyclable ones that are going to break down or do we get the stock standard one? And I think we have so many more options now and that's getting us thinking about
more about ethical investments. And I know all the ethical super funds are really pushing at the moment. I'm seeing it all over social media and TV because I think they're seeing that this is their time to start getting the word out about their products.
Yeah. And the thing is, and this is referring back to your ETF comment before about it, maybe being a little bit of a blunt instrument. Like there are some big, well, I'm going to name some names. There are some big ethical ETFs from beta shares. Vanguard has one. There's the E200 ETF, which I think is iShares or Spider. Don't quote me on that. But there are some.
There's actually a list on our best ETFs website, so we'll put that in the show notes. So these are all ETFs, and they're all relatively new. Even the big ETH and FAIR ETFs from BetaShares are new. I think it's VESG from Vanguard is new. But some of these super funds have been around for a very long time.
The fundamental difference between the ETFs, the ethical ETFs and the ethical super funds is that the super funds, the 100% ethical super funds. So you probably know who I'm talking about. We'll probably raise their name throughout the chat. They use an active strategy. So they actually have people like you and I, Kate, like analysts that look at the investments and study them.
But some of these big ETFs, as far as I'm aware, all of them, don't actually have that individual input at their business. They have that. They might outsource it. They might get it from another company to provide ethical overlays, but they don't do it themselves. And so what you end up with is you may get an ETF that's not 100% aligned with your values.
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Chapter 7: What challenges do ethical investors face?
It might be 90% of the way there. But then on the active super fund side, if you go to a super fund, they're very, very clear about what their values are. And you can say, oh yeah, That is 100% me. I don't want to invest in fossil fuel. I don't want to invest in anything that could be involved in animal cruelty like cosmetics, that type of stuff. I don't want that.
So you can actually find the one that fits for you. There's also Goodman's. They have like an ethical overlay. So these things are coming. Ray's...
Yeah, and even the robo-advisors of starting StockSpot and Sixpack now offer portfolios made up of ethical ETFs and, yeah, Raise. I think even Spaceship have an Earth portfolio now. So in the last 12 months so many different options have started popping up and most of them are using some of the ethical ETFs available on the market.
There's not too many products that are sort of direct investing but also micro ETFs. indirect stocks apart from Spaceship Earth, I think.
So this is the thing, this is the kind of, I don't know if this is a matter of marketing, but so when I talk to fund managers and when I've done my research in the past, most of them have rules around ESG, but most of them don't tell people what they are. And why?
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Chapter 8: How can you get started with ethical investing in Australia?
Because if they get branded as an ethical fund, you know, 10 years ago, when it wasn't cool to be ethical, I believe that they may have thought that they got punished for that. But now it's like, you could ask a fund manager, do you invest in cluster munitions? Yes. Okay. Do you invest, you know, and you could just go down the list and you could ask them directly, What's your ESG policy?
So what I mean to say is if you're invested in one of these funds already, ask them before you go and pull your money out. Just ask them because they might actually do it and they just don't market it. There are a lot of really good marketers in the finance industry and some of those are the ones you don't want to go with.
Yeah, and a lot of them might still be establishing what their company's views are. So actually just talking to them and providing them some input would probably be really helpful for them. If they hear a lot...
And a lot of these products have just developed because of consumer demand, because the financial advisors and the people in the industry have realized that clients are actually wanting more when it comes to what they're investing in. They're wanting more transparency and they're wanting to know what they're excluding and they want to know exactly what's in their investments.
So they're just more and more all the time are popping up. I mean, in the last... Yeah, a few weeks we've seen new ETFs pop up. So there is the demand and there's going to be more and more ETFs on offer.
And even in the US, because it's such a much bigger market, there's some very niche ethical ETFs there that probably wouldn't float in Australia yet, but you can get very niche on your values once you've got the size and the demand. So as consumers want more, there's going to be ETFs pop up that provide very niche ethical viewpoints and overlays, which is really interesting to watch.
It is, yeah.
I think there was just a climate change or climate energy focused ETF that BetaShares launched the other week or they're launching soon. I did see something like that announced.
I should know this.
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