Aligning your morals and your money | BetaShares

Aligning your morals and your money – can you make a difference?

BY Max Minack | 27 May 2020
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Aligning your morals and your money

Reading time: 5 mins

One of the few silver linings to the COVID-19 cloud is the benefit to the environment as a byproduct of shutting down the global economy – although many believe that this benefit is likely to be reversed once the crisis is over.

Separately, climate change rallies have been held across the globe, Greta Thunberg has lectured at the UN Climate Action Summit and World Economic Forum, world leaders have enacted the Paris Agreement and the Kyoto Protocol, and Shane Warne raised over $1 million by selling his ‘baggy green’. All around the world, influential people have been increasingly active in supporting or promoting causes for an ecologically, economically and socially sustainable planet.

How can ordinary people lend their support to such worthy causes?

Ways to reduce your carbon footprint include:

  • shortening your showers by two minutes
  • taking one less international flight per year (not such a challenge in the current pandemic!)
  • taking the train instead of driving a car
  • eating no more than one piece of meat a week

Whilst these are all admirable and proven ways to reduce CO2 emissions, switching your investment portfolio to sustainable funds is one of the more effective ways individuals can help to promote a more sustainable planet. In fact, according to research conducted by Nordea Bank Abp in Sweden, sustainable, or ESG (environmental, social and governance) investing could have over 27 times the impact of all the aforementioned methods combined1.

Investing in a fund that holds ethical companies – companies that are selected for the ESG benefits provided by their products and services, as well as their responsible management of their social and environmental impacts – promotes their growth by reducing their cost of capital. In layman’s terms, you increase a company’s access to funding so that it can embark on important projects and ventures to grow the company.

In addition to enjoying cheaper capital, companies that reduce emissions and pollution mitigate risk of litigation and reduce the potential for expensive environmental claims, settlements and compliance

BetaShares offers two equity funds certified by the Responsible Investment Association Australasia (RIAA) as ‘Certified Ethical Investments’ according to the strict operational and disclosure practices required under the Responsible Investment Certification Program2. Both funds also received ratings of 4.5 out of 5 in 2019 from the Ethical Advisers Co-operative3, which is the highest rating of any fund:

ETHI and FAIR employ both positive and negative screens over the global and Australian sharemarkets respectively. This means they don’t simply avoid companies with a negative impact, but proactively seek out companies that do good from an environmental perspective, offering a ‘true to label’ investment exposure. With combined assets under management of $1.15 billion4, the environmental impact of these funds is meaningful. This impact is further demonstrated by the following analysis (as at July 2018):

  • The S&P/ASX 300 average carbon footprint was over 16 times larger than that of FAIR’s portfolio6, which has 0% exposure to companies with direct involvement with fossil fuels including coal mining and power generation, as well as those with material indirect exposure.
  • ETHI’s portfolio was less than 10% of the carbon footprint of the MSCI World Index7. In other words, it takes $12.29 invested into ETHI to have the same carbon output as $1 invested into the MSCI World Index. ETHI has no exposure to companies with direct or significant involvement in fossil fuels or coal, compared to the 12% exposure of the MSCI World Index8.

Both ETHI and FAIR have significantly outperformed their respective broad sharemarket indices since inception in 2017, while the indices the two funds aim to track have outperformed over a longer timeframe (noting past performance isn’t necessarily indicative of future performance). Over the five years to the end of April 2020:

  • The index ETHI aims to track outperformed the MSCI World Index (AUD) by around 5.6% p.a.
  • The index FAIR aims to track outperformed the S&P/ASX 200 Index by around 5.1% p.a.9

More recently, BetaShares launched the BetaShares Sustainability Leaders Diversified Bond ETF – Currency Hedged (ASX: GBND) – providing exposure to a diversified portfolio of fixed-rate, investment grade global and Australian bonds that have been screened to meet strict responsible investment standards. The fund, which like ETHI and FAIR is certified by the RIAA10, holds 50% AUD-denominated bonds and 50% global bonds denominated in Euro or USD. The global bonds are ‘green bonds’, certified by the internationally-recognised not-for-profit Climate Bonds Initiative, and used to fund specific projects with positive environmental or climate benefits. The AUD-denominated bonds are subject to the same stringent negative screening process as FAIR.

 

Investment risks include market risk, international investment risk, non-traditional index methodology risk and foreign exchange risk (for ETHI and GBND), as well as interest rate risk and credit risk (for GBND). For more information on risks and other features of each Fund, please see the Product Disclosure Statement.


1. Vigeo Eiris rating report, July 2018. Portfolio analysis for BetaShares Global Sustainability Leaders ETF. Based on illustrative analysis conducted by Nordea Bank Abp (2018) in Sweden, based on certain assumptions regarding time period, sustainable vs. traditional investments, emission levels, amount invested and average annual return.
2. Lower Your Firms Cost of Capital by Managing Environmental Risks, Tirath Sandhu, 2011.
3. The Responsible Investment Certification Program does not constitute financial product advice. RIAA does not recommend to any person that any financial product is a suitable investment or that returns are guaranteed. Appropriate professional advice should be sought prior to making an investment decision. RIAA does not hold an Australian Financial Services Licence. www.responsibleinvestment.org.
4. Source: http://www.ethicaladviserscoop.org/.  The survey results consider only the ethics of each fund and do not include any analysis of fees, performance or financial suitability. The ethical score is subjective and benchmarked against each adviser’s average ethical client. Your ethics may differ. Investors should speak to an experienced ethical financial adviser for personalised advice before making any decisions. The information provided by the Ethical Advisers Co-operative does not constitute financial advice.  Ratings are only one factor to be considered in deciding whether to invest in a financial product.
5. Total AUD funds under management of ETHI and FAIR as at 22 May 2020.
6. Vigeo Eiris rating report, July 2018. Portfolio analysis for BetaShares Australian Sustainability Leaders ETF against the S&P/ASX 300 benchmark. Carbon footprint is the measure of the volume of carbon dioxide emitted by issuers.
7. Vigeo Eiris rating report, July 2018. Portfolio analysis for BetaShares Global Sustainability Leaders ETF.
8. Vigeo Eiris rating report, July 2018. Portfolio analysis for BetaShares Global Sustainability Leaders ETF.
9. Source: Bloomberg. Doesn’t take into account ETF fees and costs. You cannot invest directly in an index. Past performance is not an indication of future performance of the index or the ETF.
10. The Responsible Investment Certification Program does not constitute financial product advice. RIAA does not recommend to any person that any financial product is a suitable investment or that returns are guaranteed. Appropriate professional advice should be sought prior to making an investment decision. RIAA does not hold an Australian Financial Services Licence. www.responsibleinvestment.org.

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