This article shares five important tips for ethical investors in Australia, including how to explore a company’s workplace culture and ESG policies.
Using a share brokerage account you can buy just about anything you want, including Australian shares (ASX), international shares (you might need a separate US share trading account for this) or Exchange-Traded Funds (ETFs). Direct or individual share investing gives you maximum control over your investments. While control can be great, it comes with a heavy responsibility on you.
If you want to go down this road, please take our beginner shares course, subscribe to 3 newsletters or podcasts, and just read or listen for a month before you buy anything. And start small.
The minimum amount you need to own ASX (Australia) shares is $500, plus a small amount for brokerage (e.g. $10 per buy or sell). I would start with a few ETFs (see below) before buying individual shares…
Ok, so, you’ve heard my warnings. Now… onto my tips for ESG investors.
Avoid industries you don’t like
It just so happens that the reason I avoid investing in mining shares has nothing to do with my ethical compass. I just don’t think they’re great investments for someone like me (I know nothing about mining). You don’t need to get really technical with this — just use a piece of paper to write down a list of businesses or industries you want to avoid and don’t go there.
However, there is one hard part to this: don’t get envious of other people making money in that industry. Mining, for example, is filled with rags-to-riches stories and “traders” (and even some investors) will brag about their one stock that has done well. This is just one example (mining). Again, I’m not saying “mining is unethical” (full disclosure: I think some mining is essential for humanity to move forward).
Understand the business
Read the annual report, Segment report & company ‘about us’ page.
This is the most important part of all stock market investing — and yet it’s the one thing most investors don’t do! Let me give you an example. I believe (reminder: my values, not yours) most gambling and gaming is one of the destructive forces in our society — especially amongst young males and vulnerable elderly people, so I avoid companies/stocks that are involved in this industry — and type of business.
Let’s use an example: on the ASX there’s a company called Aristocrat Leisure Ltd (ASX: ALL). Its ticker code is ‘ALL’ and it is found on Australia’s ‘ASX’. If you visit the company’s ‘About Us‘ page you might find some great words about “creativity” and “rich history of innovation” and a mission to “bring joy to life through the power of play”. Sounds good so far… but then you dig a little deeper and realise a big part of Aristocrat’s business is pokie machines and casino gaming. This is not a knock on Aristocrat — Crown Resorts Ltd (ASX: CWN), Jumbo Interactive Ltd (ASX: JIN), Star Entertainment Ltd (ASX: STR) and many others do a similar thing.
You can and should read a company’s annual report, or at least the Chairman and CEOs address when it is published. You can find this on the company’s investor relations website (google the company name + “investor relations”) or by going into your brokerage account and filtering for the latest annual report. Finally, in an annual report, there’s something called a “segment report” (buried in the accounting notes). This will show you each of the company’s major business lines. Sometimes companies don’t disclose much in their segment report, so you might need to dig a little deeper online.
Check ESG policies (if any)
Right now, it’s not a clear-cut responsibility for companies to disclose their exact stance on ESG in reports (accounting bodies are working on this). However, many large Australian and US companies have got on the front foot and produce an ESG or sustainability report, which may be available on their website.
For example, do an internet search for “CBA sustainability report”. Have a read-through. Sometimes companies disclose ESG information on their website.
I’ve found a good sign of a crappy investment (arising from poor management), is terrible workplace culture. This is a tip for job seekers and investors alike. Use Seek Companies (for Australian companies) and Glassdoor (for international companies) to see honest reviews of company management teams and workplaces. Important warning: keep in mind that some companies need a ‘harder’ environment to be a success.
For example, Flight Centre Travel (ASX: FLT) is one of Australia’s top-performing travel agents, but it scores (at the time of writing — late 2020) around 40% on Seek for would “recommend this employer to friends”. Many disgruntled people also leave many reviews. What you might be looking for is a bad score plus repeated reviews mentioning issues with something you’re not comfortable seeing in a business (e.g. harassment, indigenous issues, bullying, underpayment of wages, etc.).
Explain the investment to someone else before you invest
Always consider the risks.
This is powerful — in more ways than one. I used to call this my “better half test” because I’ve found, time and again (and often the hard way!), that when you explain an investment or strategy to someone — no matter their level of financial knowledge — cracks appear. Big cracks.
Using a piece of paper, your phone’s note-taking function or an investment journal, jot down 6 dot-points about the investment or change (e.g. in Super) you want to make.
Make 2 of them ‘key risks’ or ‘here’s what could go wrong’. Summarise them with your partner, friend or family member.
Chances are you will find some cracks in your knowledge — and that’s a good thing.
Take note of them and go back to your research with the aim of filling in those gaps with answers. Rinse and repeat this process until both you and your investing accomplice are happy to go ahead with the investment.