We’re told our super can create a more sustainable world if we put it to “good” use, but how many of us think about where we’re putting our money – and how does it work in reality?
It depends on the type of investment you hold. We asked Senior Investment Specialist Victoria Kent from Elevate Super to break down the investments that may end up in an ‘ethical,’ ‘sustainable’ or ‘green’ investment portfolio…
Investing in Shares
Direct investment through equity securities (e.g. the purchase of ordinary shares in a company) is essentially part ownership of an asset; usually a business. This means that through your investment, you own part of the company and a proportionate share of the profits the company may distribute.
It’s fundamental to understand ownership does not happen in a vacuum or in the ether of the stock exchange. Ownership equals real responsibility for the impact a company’s goods or services are having on society and the environment.
When you invest in a company, you’re not only funding their operations; you’re also enabling them to continue producing the goods and services that can have a positive or negative impact on our world.
Let’s consider a solar energy producer versus a cigarette manufacturer for impact on society. If you’re invested in a profitable solar energy company, you’re benefiting financially while the company sells a product creating a greener world.
If you’re invested in a profitable cigarette company, you’re potentially making money at the expense of someone buying a known cancer-causing product. Which company would you support?
Interestingly, share ownership entitles the shareholder to a say in the affairs of the company. This is where voting becomes important. Investment managers must pay attention to key votes and governance issues impacting the companies in their portfolio.
The rise of impact investing is an exciting development in global finance, whereby the financial markets provide capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation and microfinance.
What is it?
Impact investments are those made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
An example of an impact investment is Social Ventures Australia’s Resolve Social Benefit Bond, which is expected to improve the mental health and wellbeing of participants, while generating significant savings for the NSW Government through a reduction in participants’ utilisation of health and other services. In particular, by reducing the number of days spent in hospital.
These savings will be shared to fund the delivery of the program, as well as with investors to provide a financial return on their capital. This type of investment is distinct from philanthropy, as not-for-profit and charitable organisations are rarely concerned with a financial return.
That is not to say an impact investment guarantees a financial return, nor does it guarantee an ‘impact’ – environmental, social or other. How impact investments measure their impact is of vital importance to the success of such investments, and choosing what and how to measure it isn’t a straightforward task.
The Global Impact Investing Network have listed the following as best practices for impact measurement:
• Establishing and stating social and environmental objectives to relevant stakeholders
• Setting performance metrics/targets related to these objectives using standardised metrics wherever possible
• Monitoring and managing the performance of investees against these targets
• Reporting on social and environmental performance to relevant stakeholders
There’s no doubt about the exciting potential of impact investing. Bringing impact investing further into the mainstream will provide new firepower in the push to achieve the Sustainable Development Goals (SDGs).
Green bonds, also known as climate bonds, are debt investments (or loans) intended to encourage sustainability and support climate-related or other types of special environmental projects.
More specifically, green bonds finance projects aimed at:
• energy efficiency,
• pollution prevention,
• sustainable agriculture,
• fishery and forestry,
• the protection of aquatic and terrestrial ecosystems,
• clean transportation,
• sustainable water management; and the
• cultivation of environmentally friendly technologies.
Green bonds have been growing increasingly popular and there is currently an estimated US$62.8 billion financed by green bonds. The World Bank issues green bonds to finance projects around the world, such as India’s Rampur Hydropower Project that aims to provide low-carbon hydroelectric power to northern India’s electricity grid.
Be it through green bonds, impact investing or direct investment, the more money invested in companies producing goods and services that impact positively on society, the more we can help achieve the SDGs.
This means that through our super, we collectively have the investing power to help drive this positive impact beyond our voting and consumer power.
Elevate Super is a retail super fund managed by investment specialists AtlasTrend. Elevate Super assess and measure investments based on their long-term growth fundamentals plus positive contribution to the UN Sustainable Development Goals, a global blueprint for balancing today’s economic, social and environmental needs.
Important notice: AtlasTrend Pty Ltd (ABN 83 605 565 491) is the promoter of Elevate Super and an AFSL Corporate Authorised Representative (No. 001233660) of Fundhost Limited (AFSL 233045) and Arrow Securities Group Pty Ltd (AFSL 448218) (Arrow). This communication contains general advice only and does not take into consideration your personal objectives, financial situation or needs. None of the information provided is, or should be considered to be, personal financial advice. The information provided in this communication is believed to be accurate at the time of writing. None of AtlasTrend, Aracon Superannuation Pty Ltd, Arrow or their related entities nor their respective officers and agents accept responsibility for any inaccuracy in, or any actions taken in reliance upon the general advice provided. A copy of AtlasTrend’s financial services guide can be found at www.elevatesuper.com.au/fsg. This communication is not an offer to invest in Elevate Super. Before deciding on Elevate Super, you should read the Product Disclosure Statement available or call Elevate Super on 1800 875 148 and seek professional financial advice to consider if Elevate Super is appropriate for you. Elevate Super is a sub plan of the Aracon Superannuation Fund. Elevate Super is issued by Aracon Superannuation Pty Ltd (ABN 13 133 547 396, AFSL No. 507184, RSE Licence No. L0003384) as Trustee of the Aracon Superannuation Fund (ABN 40 586 548 205).