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Socially responsible investments - The winds of change

Posted by Alex Menzie on 16 June 2020
Socially responsible investments - The winds of change

Current social events have, once again, reinforced the importance of investing time and energy in making a positive difference and not letting opportunities to change the world and impact future generation pass us by. Whether it be environmental or social issues, much has been pondered, written, and debated about the best ways to practice social responsibility.

In line with this shift in social thinking, over the past few years we've similarly witnessed an increased awareness from our clients, not just in regard to their ability to impact those around them, but also to make a difference in the way they choose to invest.

So what is 'socially responsible' investing (SRI)?

Socially responsible investing involves applying additional criteria to your investment options with the purpose of either increasing your investments in areas that align with your values and assist to create positive change (think, clean energy, waste reduction, education or healthcare), or reducing your investments in areas that don't (think fossil fuels, armaments and tobacco).

The rise of globalisation in the late '90s and early 2000s blurred the lines and made decisions about what to include in your SRI portfolio challenging, which in turn led to an increase in the cost of socially responsible portfolios.

Unfortunately, this increased cost of investment led many to put socially responsible investing in the too-hard basket, with people instead having to look elsewhere for ways to make a difference in their local communities or to show support for companies they wanted to champion.

The winds of change

In a positive move for investors, the increased debate over social and environmental issues, globally, has led to socially responsible investing becoming increasingly in demand, and therefore, more mainstream. As a result, the costs associated with these portfolios has reduced significantly. Now, many of the largest fund managers in the world have SRI investment options. Given the significant impact of fees on overall returns, we're excited about these moves and the potential they create.

For example, in May, one superannuation fund announced that from 1 July, they'd be making some significant changes to the way their socially responsible fund was managed; starting with a reduction in the management fee from 1.09% to 0.45%. This effectively removed one of the biggest barriers that has historically impacted many investors' ability to participate in this area.

It's also interesting to note that the returns achieved by some socially responsible managers are now increasingly comparable to their peers practicing a more traditional investment approach.

Despite the exciting opportunities that changes in this space brings, however, it's important to note that any investment should be made in line with your personal longer-term objectives. As always, a good adviser will be able to walk you through the complexities of the different investment options available and help you to design something that's right for you. 

If this sounds like a conversation you'd like to have, then reach out on 07 3363 5800 or info@medicalfinanical.com.au and we can discuss your best path forward.

Author: Alex Menzie
Tags: Investment Stock market

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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

The financial planning services are provided by Medical Financial Pty Ltd trading as Medical Financial Planning (AFSL 506557)