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Responsible Investing – Understanding Your Options

A lot of what we do in life is better done in a responsible way – driving, raising kids, the whole lot. Investing can be the same, but it is critical that investors understand their options on how they can have their money invested in portfolios that prioritise shares deemed “responsible” from an environmental, social and governance perspective.

What is “Responsible Investing”?

Russell Investments provides a great definition for Responsible Investing – “a strategy and practice to incorporate environmental, social and governance (ESG) considerations into investment decisions and active ownership”. In other words, investing your money into companies that meet the standards of the investment management team as they relate to ESG metrics. The idea behind this is that as an investor, you can rest easy knowing that you are investing in companies that are taking proactive steps to improve (or reduce their impact upon) the environment; consider people & relationships; and operate their company ethically and in a sustainable manner. Key factors for each are as follows.

• Environmental: Climate change and carbon emissions; Energy efficiency; Waste management; Air and water pollution
• Social: Customer satisfaction; Data protection and privacy; Gender and diversity; Employee engagement; Community relations; Labour standards
• Governance: Board composition; Audit committee structure; Bribery and corruption; Executive compensation; Political contributions; Whistleblower schemes

When looking into shares for managed portfolios, investment managers look at the above factors to determine whether a particular share falls into their definition of “Responsible” for the purposes of investing client funds.

What Does Responsible Investing Mean for Your Portfolio?

Perhaps in years gone by, the bottom line for investors was always – what’s the best return I can get on my investment? Then an investor, or their adviser, would invest according to their risk profile (how tolerant they are of certain levels of risk). However, these days, people are more interested in exactly where their money is going, hence Responsible Investing practices and portfolio options. While there are never any guarantees that an investment will pay off, the shift in focus towards ethical investment options does mean that “responsible” shares have been well-researched, both in terms of their financial viability and their satisfaction of the investment manager’s definition of “responsible” and many companies are already heading down this path. The goal of these investment types is still to return and help you, the client, achieve your financial goals, but adds an extra layer of consideration.

How Can You Get on Board with Responsible Investing?

There are many managed funds that offer Responsible Investing as a type of portfolio. Not all are necessarily developed with the same level of detail and expertise, so it is important to ensure that if you do choose to go down that road, it’s with a product that suits your unique circumstances. The best way to do that is to consult with a financial adviser, who can assist you in understanding your risk profile and present you with options.

How MP+ Can Help

Now that you know a bit more about Responsible Investing and what  can do for your investment strategy and portfolio, you may be interested to know how it fits with your circumstances and goals. Your MP+ Wealth Adviser is your first port of call, as they will be able to take into account your overall financial plan and investment risk profile, and evaluate your options as they relate to your unique needs and goals. As ever, you should always consult with a financial adviser before taking on any investment product. If you’d like to speak with our team, feel free to reach out via our website, or call us on 08 9301 2200.

General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

written by:

Aaron McCracken

Aaron has over twenty years of experience in the financial services industry working with large companies and small businesses across all aspects of financial planning. He has broad experience across superannuation (including self-managed superannuation), investments, estate planning and personal insurance, retirement planning and business succession planning.
Aaron is passionate about the value of professional, client-focused advice and enjoys working closely with clients to help them make smart decisions with their money, as well as aiding them to clarify and achieve their financial aspirations.