As founder of Goodments, an app that enables everyday Australians to invest in companies that align with their ethics and worldview, Tom Culver certainly knows a thing or two about the burgeoning business of ethical investment. Here, he delves into what it is, who’s doing it, and why.
By Tom Culver, Goodments founder and Bank Australia customer.
Now, these are two words you might have never expected to see side-by-side. But there they are. And they’re not as oxymoronic as you might think.
As the founder of Goodments, an app that enables everyday people to invest in companies and businesses that align with their ethical beliefs, I can tell you, with confidence, that ethical investing is indeed a thing. And if you need any further proof of the ‘thing’ status of ethical investing, consider this: according to the Global Sustainable Investment Alliance Trends Report, sustainable investment grew 34% between 2016-2018.
In truth, ethical investing has been a thing for a while. From a religious perspective, it’s been around for a couple of hundred years at least – people have long invested their money in areas that align with their religious beliefs. Nothing new there.
Why is this happening now?
There’s a convergence of once-in-a-lifetime factors that are contributing to a shift in the way people are thinking about growing their money. People are being locked out of the property market, savings rates on cash are at an all-time low, we live in a world of increasing job insecurity, and there is a lengthy wait for the wealth from one generation to transition to the next.
Add to that the fact that people are increasingly frustrated and disillusioned with politicians and governments, and are looking for a way to make their own positive impact. In fact, according to Deloitte, some 80% of us are now looking to businesses, not governments, to create a more sustainable future.
Tech has a part to play, too. The rise of technology-driven companies and funds that care about impact as much as their customers do, are making investing cheaper and easier while providing education and focusing on impact.
What are people investing in?
The companies our customers are choosing to invest in tell an interesting story, too. The investment choices are reflective of what’s going on in society and politics both in Australia and around the world.
We’re finding that our own customers are primarily interested in environmental issues and things like predatory lending – which really saw a boost in interest after the Banking Royal Commission.
Of our nine ethical preferences our customers can select from the top three are renewable energy and clean tech, recycling and waste reduction, and protection of natural environment. People really are voting with their wallets – and we can see it happening, in real-time, every day. It’s quite something.
In terms of the things our customers are steering clear of, it really comes down to industries that might have a detrimental impact on people or communities. That means that, on the whole, they’re not supporting companies that have any connection to tobacco, gambling, alcohol or predatory lending.
Can you actually make money through ethical investing?
I think there’s a common misconception that if you invest in a responsible or sustainable asset that you’ll see a lower return. But there’s plenty of evidence that suggests the opposite. Companies that take their environmental risks seriously, for example, are actually more profitable over the long-term because they don’t have major disasters, don’t get sued, and don’t get the bad press that accompanies those things.
Of course, there are many variables, but investing in ethical or sustainable companies has little to no bearing on how much money you’ll make. With the direction many industries – and society on the whole – are heading, it’s pretty easy to argue that going sustainable is a safer bet than ever.
Ethical/responsible/impact investing – whatever you like to call it – is evolving rapidly, which means simple offerings no longer cut the mustard. Customers want to be able to define what sustainability means for them, and not solely rely on options given to them by some anonymous fund manager in a suit.
There is also a shift to how companies talk about impact. The UN has created 17 Sustainable Development Goals designed to help change the world, and investors – and their investments – are now contributing to that.
Advances in tech and data capture are making it easier than ever to demonstrate impact – the future is about being able to show an investor the impact of every dollar they have invested, in the key areas that each investor cares about. Whether that’s avoiding carbon emissions, or rebalancing the workforce so it’s more equal, or lifting the health of local communities.
If the ethical investment sector grew 34% in just two years – where do you think it’ll be by 2025? Investing ethically is, quite literally, investing in our future. And I, for one, can’t see that falling out of fashion anytime soon.