Social conscience and your portfolio

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

THE recent Earth Hour shows how widespread concern for our environment has become. Once regarded as a fringe movement, the 'greening' of our outlook has filtered through to virtually all aspects of our lives, including investing.

Taking an eco-friendly approach to your portfolio has been made possible through a range of so-called ethical managed funds. These funds can be marketed under a variety of names including 'socially responsible investments' (SRI). The common thread is that these funds target companies whose activities are generally considered either beneficial to the environment or which promote social welfare issues like community finance.

To give you an idea of what SRI is all about, activities like wind farming and other renewable energies get the thumbs up from these funds. Companies operating in, say, the gambling or armaments industries are typically avoided.

One of the veterans of SRI is Australian Ethical Investments. This fund manager focuses solely on ethical investments, spreading its underlying portfolio across industries like health care, waste management and organic foods.

However as environmental awareness becomes a widespread concern, many mainstream fund providers have added SRI funds to their list of investment options. These include AMP, BT and Perpetual, and many offer super fund options with the same green bias.

Investors may be spoilt for choice but it can be a lack of choice that proves challenging for SRI funds.

Like any other investment, SRI funds need to produce a healthy return for investors. The trouble is, the Australian sharemarket is dominated by resource companies. For many SRI investors, household names like BHP Billiton and Rio Tinto are a no-no because of involvement in activities like mining that can be seen as environmentally damaging.

Despite this, SRI funds generally do pretty well. According to figures from the Responsible Investment Association of Australasia (RIAA), over the last seven years (to the end of 2009) SRI funds have delivered an average annual return of 12.64% compared to 11.52% among mainstream funds.

It goes to show that being socially conscious can be good for your portfolio as well as the planet. But even if you have your super or other investments tied up in direct shares or traditional managed funds, don't feel as though you're doing the wrong thing by the planet. All businesses, including our leading companies, are under pressure to reduce their environmental impact.

Before dipping your toes in the water of ethical investing, it's worth having a think about what you personally regard as 'ethical'. Some funds take a very hard line approach, others are more flexible. Taking a good look at a fund's product disclosure statement will give you a reasonable idea about whether a fund's idea of 'green' or 'ethical' matches your own.

Note too, many SRI funds invest in companies that deal with emerging technologies. Not all these technologies will prove commercially viable in the long run. But at least with an SRI fund, you can lend a financial hand to give the ventures, and the environment, a sporting chance.

For a list of managed funds offering SRI options, visit

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Financial Literacy Foundation and chief commentator for Money Magazine.

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