Ethical investing. It's an interesting concept, but is it achievable?
Every person is different and what we deem to be 'ethical' may vary. However there are some common themes in the investing world that are deemed 'unethical'.
What is deemed 'unethical'?
Generally speaking, unethical investments could be deemed as ones that involve some or all of the following categories:
- Fossil fuels such as oil and gas
- Gambling
- Alcohol
- Tobacco
- Nuclear power
- Civil or military weapons
- Adult entertainment
- Anything that destroys the environment
- Animal cruelty
That's a big list!
I would argue that most people are good people. Just because you hold an investment in one of these sectors, this doesn't mean your moral compass is broken. Personally, I buy companies in some of these categories and don't have too much of an issue with it. Of course, I still consider myself a good person. It's really a question of what is good for you personally. If you're generally interested in ETFs, but not too concerned about ensuring all your money goes towards ethical investments, then check out this list of top ETFs.
Some people, however, simply can't live with themselves knowing they have financially contributed to what they consider unethical practices, even if it's indirectly. If you are one of those people, I have good news for you. There are a number of exchange-traded funds (ETFs) that have you covered. The managers of these funds have set up specific criteria to select companies that avoid 'unethical' categories.
Here are some options for ethical investing:
VanEck Vectors MSCI Australian Sustainable Equity ETF (ASX: GRNV)
This ETF is designed to give investors access to a range of Australian sustainable companies.
Materials is the largest sector holding here, weighing in at 22.7%, with financials coming in second at 18.5%.
According to VanEck, this ETF holds companies that have a high level of environmental and social governance (ESG) and relies on the following guiding principles:
- It excludes companies that own any fossil fuel reserves or derive revenue from mining thermal coal or from oil and gas related activities.
- It excludes companies with business activities that are not socially responsible investments (SRI).
- It targets companies with high ESG ratings.
The fees are low at 0.35% per year. Performance wise, the fund is actually down around 9% since inception. On a positive note, it has performed well since the March crash, rising more than 35% in the last 6 months. Dividend returns are quarterly and currently sit at around 4% to 5% return. Detailed information can be found here.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This ETF holds global companies that have been identified as 'climate leaders'.
The largest sector holding is information technology, sitting at around 38%.
Using the fund manager's methodology, we can see themes such as these ones governing the ethical investing inclusion process:
- It excludes those companies involved in firearms, environmental destruction or animal cruelty.
- It excludes companies with fines or convictions and those with human rights concerns.
- These climate change leaders must have a carbon impact of at least 60% less than their industry average.
One thing to note here is that the fees are a little high, being 0.59% per year. Although, personally, I don't think this is too bad. Fund performance is up more than 60% since inception. Over the last 6 months, it has returned around 15% to investors. Dividend returns are 6 monthly and have been as high as 12.80% recently according to the provider's performance reports.
Vanguard Ethically Conscious International Shares Index ETF (ASX: VESG)
This fund holds some of the largest companies in major developed countries. Finding an ETF that hits all the points we discussed earlier is hard, however, this one certainly tries.
Technology companies make up the largest sector holding at around 26%.
It excludes companies with the following business activities:
- Fossil fuels
- Nuclear power
- Alcohol
- Tobacco
- Gambling
- Weapons
- Adult entertainment
- Conduct related to severe controversies
One thing I like about this fund is the low management fee. At just 0.18%, it's very competitive in the ETF market. Performance wise, it has returned around 16% since inception. It also rebounded well from the market crash in March. Dividends are paid quarterly and are currently sitting at around a 1.9% to 2% return. A fact sheet can be found here.
Foolish takeaway
Ethical investing can be difficult when there are so many opportunities in the market. At the end of the day, though, these funds and the companies they hold are helping to make the world a better place so I feel they are worthy of consideration.
The great thing about ETFs is that you gain diversity to sectors and industries that interest you. Adding these ethically conscious ETFs to your portfolio may just be the balance and peace of mind you are seeking.
