Ethical investing - share, Australia

[AliEli]

Hello :)

I was wondering whether anyone else takes ethical / social responsibility into consideration when buying shares?  I am starting to look at buying shares in individual companies that have a social and environmental benefit, I'd love to get ideas and opinions from people who are already investing :)  I am in Australia, so in practice I'm looking at the Australian market in practice, but I'm interested to hear ideas from other parts of the world too.

[BTH7117]

I've often considered this myself.  I am a strong supporter of animal-related causes and I don't otherwise patronize businesses that conduct animal testing if I can avoid it.  However, I've come to the conclusion that despite my moral objections, it is still better to just use index investing.  If I don't buy Procter & Gamble stock through an index fund, all I could hope to accomplish is make the price of a single share $0.000000000001 less expensive for someone else to buy.  In the end, the only financial hurt I would be inflicting is on myself in the form of the very high fees usually associated with values-based investing.  IMHO, the better idea is to use the money you make from low cost index investing to make donations or buy products from companies that fit your values.


http://www.forbes.com/sites/feeonlyplanner/2015/11/12/avoid-problems-with-socially-responsible-investing/#303f8c8390fb

[Vagabond76]

If one looks at my investments and devises themes, they would probably be something along the lines of:

- Smoke if you got 'em
- Drill, baby drill
- Just dump the trash over there
- Lab rats
- Slumlord

[MustacheAndaHalf]

The market won't know what you're doing.  Anyone who isn't buying or selling is not determining the market price for a security.  Once you make your decision (buy or sell), the market ignores you the very next hour or day.  The problem with imposing ethics is that the market only has prices, not your reason for doing something.

So I'd echo the suggestion to use donation as a method of showing your ethics.  The danger with using the market is that you'll think you're doing something - and stop there - when the market just sees the everyday noise of prices moving up and down.  Now if you can convince a large school or charitable endowment to divest from an unethical company, that's something.  But that involves protest and letter writing, not individual investing.

[dungoofed]

If one looks at my investments and devises themes, they would probably be something along the lines of:

- Smoke if you got 'em
- Drill, baby drill
- Just dump the trash over there
- Lab rats
- Slumlord

Haha same! Add "Payday Loans!" to the list and you've got my portfolio lol.

Seriously, when I analyse a company I often rule out companies where their ethical hangups are likely to make them less competitive in the space for no good reason. The exception would be for something like an organic skincare company - in this case it would pay to plug the hell out of how ethical you are.

[Mark31]

I don’t pick individual stocks, but I do invest a fair bit of my money ethically, through Australian Ethical Investment.

The thing is, there are lots of different types of ethical. There’s environmentally ethical, animal-testing ethical, treating their employees well ethical, there’s least worst by industry ethical, there’s producing something of value to society ethical, there’s corporate activism ethical (buying shares in a company to improve their behaviour). Some people believe there’s a correlation between these kinds of ethics and good corporate behaviour, which ultimately delivers better value of the long term.

You buying individual shares won’t make any real difference, but a managed fund that pools the money of many people like yourself can make a difference by supporting ethical companies or influencing the behaviour of not quite so good ones.

I’ve been happy with my Aust Ethical managed funds so far (and I do keep track of and compare performance), they’re the biggest in Australia, but I believe there’s others. I think there’s a Catholic one, but they may just do superannuation.

I don’t just do it for the warm inner glow. I actually feel it makes financial sense in the long term to be a little over-represented in alternative energy production, energy efficiency, and health technology. They invest in IT, telecommunications, property and financial services as well so it’s not like they’re crazy skewed.

There’s a list of the companies they invest in here:
https://www.australianethical.com.au/companies-we-invest-in/
If you want to buy individual shares yourself, you could just pick from this list.

[AliEli]

Hi Mark31 - I have been looking at their site, and I'm glad to hear from someone who has invested with Australian Ethical.  I'm new to buying shares, so they are appealing - do they pay dividends?  Have you been happy with how they have performed?

For me, investing my money based on my own ethics makes sense.  I am a nurse, and since I don't make a huge income I'd like to at least make sure that the money I am putting into investments is of benefit to the world.  I wouldn't put money into companies that profit from tobacco for example - I can't complain about how disgusting smokers' sputum is if I am profiting from their addiction.  My career choice and what I see at work influence where I want my money to go... even if it makes no real difference to how the economy operates, at least I'm not profiting from misery.

[stashgrower]

I use the sustainable options offered by my industry super fund for my super. I am still coming up with a plan for individual shares (after indexing), decided by a "this fits my ethics" feel of things. I realise that's vague, but as described above everyone has different ideas of ethics.

[Mark31]

Over the relatively short period I’ve had them, some of their funds have paid dividends, and some haven’t. A lot or possibly all of the dividends are franked.

The Australian Shares fund has provided the highest dividends, 4 to 10% per year, the Diversified fund regularly pays out small dividends (ca 0.5% every 6 months) and the International Shares and Emerging Companies haven’t paid any dividends.

I’m not really fussed myself if they’re value growth only, or growth + dividends for my personal situation, but it is very situation specific.

[misterhorsey]

Just make sure to check out their management fees.

Taking superannuation as an example....

Somehow I got onto the mailing list of a superannuation outfit,

http://www.myfuturesuper.com.au/super_fund

Their ethical screens are totally righteous, but you are paying a fee of 1.9% per annum for the privilege.

As a comparison, you could invest your money in the HostPlus Balanced Index option for 0.05% and then donate the difference to your favourite environmental, social justice, health charity and possibly make more difference with that investment/donation.

The difference is 1.85%. 1.85% of $100k is $1850.

Nuthin' to sneeze at.

[Mark31]

I don’t have my super in an ethical option because while the fee within my fund (which I’m tied to) is only 0.9%, I didn’t think their ethical screen was good enough to justify the higher management fee over my base option. Plus I didn’t like the asset allocation within the fund.

Aust ethical’s fees range from 2.2 to 2.5%, although for a few of the options once you have $25,000 invested you can halve that number, or if you have $500,000 invested overall.

Managed funds do, on average, do better than index funds, before accounting for fees. So it’s not like you’re going to lose all of the difference between a low cost index fund and a managed fund. It also not like you have to invest all your money in ethical funds.

Donating the difference is not a bad idea, particularly if you donate to charities that engage in corporate activism. It could end up having a similar effect.

[stashgrower]

Good points, misterhorsey.
I can't switch super and I don't have index options. In my case the fee for the sustainable option is comparable to the alternatives.

[Primm]

I think there’s a Catholic one, but they may just do superannuation.

I'm in a Catholic super fund, so I just went to check this out and found:

Note: This option is fully invested in the AMP Capital Investors Responsible Investment Leaders Balanced Fund.

So not technically a separate fund apparently.

[Drifterrider]

Hello :)

I was wondering whether anyone else takes ethical / social responsibility into consideration when buying shares?  I am starting to look at buying shares in individual companies that have a social and environmental benefit, I'd love to get ideas and opinions from people who are already investing :)  I am in Australia, so in practice I'm looking at the Australian market in practice, but I'm interested to hear ideas from other parts of the world too.

No.  I look for return on my investment.  There might be some businesses I wouldn't want to be involved in but I can't think of any off hand. 

[hodor]

Nope, fees are horrendous.

I would be interested in a low cost rules base ETF if it was available. Take out miners, gambling, tobacco etc from the asx300 or something similar and I would be interested.

[seattlecyclone]

You buying individual shares won’t make any real difference, but a managed fund that pools the money of many people like yourself can make a difference by supporting ethical companies or influencing the behaviour of not quite so good ones.

I disagree with this premise. Buying (or not buying) shares on the secondary market has essentially no effect on how a company does its business. By avoiding ownership of a certain company, all you're doing is letting less "ethical" investors own it, pick the board of directors, etc. The price won't even be materially different unless a large majority of the market decides to boycott ownership of that company.

If a large group of people wants to pool their money to make a difference, I might suggest that the best idea is to actually purchase a controlling stake in a particularly bad oil company. Elect a sympathetic board of directors who will continue pumping oil out of existing wells (since we do still need the stuff, after all). Instead of investing the profits into looking for more oil, build massive solar and wind farms. Over time that company will gradually transition from fossil fuels to a large, well-capitalized provider of sustainable energy. Once you turn one oil company around, repeat with the next one, and so on.

That's how you make a difference. Sitting on the sideline might make you feel good about your moral superiority, but it has essentially no effect on market prices or the behavior of the companies you dislike.

[misterhorsey]

This might be worth a look as well.

Saw them advertising on SBS while watching the Paris-Roubaix!

https://bankaust.com.au/personal/

From their 'About us':

Being sharp on price, and making a profit is important to us all. But we believe money should also be put to good use, creating positive social, environmental and cultural outcomes. A kind of mutual prosperity for all.

Not being bound by the demands of investors means we act in the best long term interests of our customers. Put simply, as a customer and part owner of the bank, we’re answerable only to you. We respect your point of view, which is why our customers each have an equal say in how we go about our business.

Presumably if they only lend to ethical projects, if you do business with them (via your own savings account or borrowings), then you're making the cost of capital marginally easier for other ethical projects/businesses etc.

I haven't looked into the detail but things you'd need to consider is:

- what are there ethical screens
- what premium am I paying them, compared to the BIG 4 or other finance alternatives.

Its a Mutual Society, which seem to have all but disappeared from mainstream banking in Australia, but functioning as a bank, but with a social justice bottom line.

[Primm]

This might be worth a look as well.

Saw them advertising on SBS while watching the Paris-Roubaix!

https://bankaust.com.au/personal/

From their 'About us':

Being sharp on price, and making a profit is important to us all. But we believe money should also be put to good use, creating positive social, environmental and cultural outcomes. A kind of mutual prosperity for all.

Not being bound by the demands of investors means we act in the best long term interests of our customers. Put simply, as a customer and part owner of the bank, we’re answerable only to you. We respect your point of view, which is why our customers each have an equal say in how we go about our business.

Presumably if they only lend to ethical projects, if you do business with them (via your own savings account or borrowings), then you're making the cost of capital marginally easier for other ethical projects/businesses etc.

I haven't looked into the detail but things you'd need to consider is:

- what are there ethical screens
- what premium am I paying them, compared to the BIG 4 or other finance alternatives.

Its a Mutual Society, which seem to have all but disappeared from mainstream banking in Australia, but functioning as a bank, but with a social justice bottom line.

I saw this too, and am looking into it.

Side note - how awesome was the race!

[potm]

http://www.asx.com.au/education/investor-update-newsletter/201408-new-lic-to-help-childrens-charities.htm

That's an LIC that has a 1% fee that goes to Children's charities.
It invests in a bunch of fund managers who have agreed to waive their fees.

[FLBiker]

Managed funds do, on average, do better than index funds, before accounting for fees.

Is this true?  I thought the opposite was true.

[misterhorsey]

This might be worth a look as well.

Saw them advertising on SBS while watching the Paris-Roubaix!

https://bankaust.com.au/personal/

From their 'About us':

Being sharp on price, and making a profit is important to us all. But we believe money should also be put to good use, creating positive social, environmental and cultural outcomes. A kind of mutual prosperity for all.

Not being bound by the demands of investors means we act in the best long term interests of our customers. Put simply, as a customer and part owner of the bank, we’re answerable only to you. We respect your point of view, which is why our customers each have an equal say in how we go about our business.

Presumably if they only lend to ethical projects, if you do business with them (via your own savings account or borrowings), then you're making the cost of capital marginally easier for other ethical projects/businesses etc.

I haven't looked into the detail but things you'd need to consider is:

- what are there ethical screens
- what premium am I paying them, compared to the BIG 4 or other finance alternatives.

Its a Mutual Society, which seem to have all but disappeared from mainstream banking in Australia, but functioning as a bank, but with a social justice bottom line.

I saw this too, and am looking into it.

Side note - how awesome was the race!

Absolutely unexpected result. So glad I stayed up to watch it as it's an effort that will be talked about for a long time to come!

[Mark31]

“Managed funds do, on average, do better than index funds, before accounting for fees.”

I recall reading this little factoid on the monevator website. I don’t recall how much better. Of course after accounting for fees index funds do better. (again all averages).

By investing “ethically” I’m betting that the companies and industries I’m investing in will beat the average over the long term. I don’t see it as being any different to buy and hold direct stock picking, which I don’t think everyone looks down on, even on this forum.

I’m desperate enough to stop working that if I became convinced that investing ethically would hold me back, I would stop it. I’m not that principled.

Responding to seattlecyclone – I think you have a good point about the effect or otherwise of ethical investing, but I’m not sure you should be ascribing feelings of moral superiority to ethical investors. Speaking for myself, it feels good in and of itself, not through reference to others. I get my moral superiority kicks elsewhere.