In an age when consumers are more socially aware of the products and services they are involved with, it is no wonder that ethical investing has moved from a ‘niche’ market to a mainstream way of investing. Investors now want to know the where, whys and hows of a company’s products and services – no longer wanting to benefit from a company who is causing harm to society or the environment. Otherwise, wouldn’t we just be investing in the demise of the world we live in?
Jumping in, stage right, are leading ethical fund managers – giving investors a way to invest in the positive and avoid those doing harm, as well as the returns they desire. The added bonus for not-for-profit investors is they can also be comforted knowing funds are invested in a manner that supports their mission. Because, let’s face it − we don’t invest for no gain.
Ethical fund managers each have their own “logic” to get what they consider the right ethical investing mix. During its 30 years in the industry, ethical funds manager UCA Funds Management has developed an integrated ethical investment approach that not only excludes industries and companies from investment they consider to have a negative effect, such as companies that infringe human rights or cause unacceptable damage to the natural environment, but also seeks to invest in positive companies. Putting their words into action, the ethical fund manager’s Ethical Investment Policy stipulates each portfolio must contain at least 10 per cent of positive stocks at all times. It also works collaboratively with other major investors and for-purpose organisations to lobby companies to reduce any harm they cause to society or the environment.
What makes a company positive, you might ask? UCA Funds Management defines a company as positive if its products, services and practices enhance health and welfare and that preserves the environment, such as those in clean energy, recycling, employment and community services.
Although this approach sounds great on paper, how does using this ethical investment approach work for investors? Much to the dismay of “non-ethical” fund managers, it also benefits investors’ pockets. In a recent Responsible Investment Association Australasia benchmark report, ethical funds generally performed better than the average non-ethical fund. Ethical funds within the Australian shares and Multi-sector Growth category, including those offered by UCA Funds Management, also outperformed their relevant benchmarks over the short, medium and long-term. UCA Funds Management’s UCA Growth Portfolio and UCA Enhanced Cash Portfolio have also remained within the top three performing funds of their associated fund categories (which include both ethical and non-ethical funds) over the last 30 years.
Outside of returns, ethical investing is also practical. Scientific research has revealed that we can only burn 12 per cent of known coal reserves if we are to maintain a liveable environment on earth. Juxtapose this with the fact that enough solar energy falls on the earth’s surface in an hour to power the entire planet for a year and you start to get a clearer picture of where our future might lie. If solar power currently stands at 1 per cent of total global electricity production and continues to compound at current growth rates, we are only 20 years off the potential of 100 per cent solar generation.
Ethical investing is not only about investing for a better tomorrow, it is also smart investing − not only for the world around us, but for investors.
> Read more about UCA Funds Management’s ethical investment approach