Looking to Invest Ethically? Here’s What to Consider

A growing number of Australians are seeking investment options that reflect what matters most to them. In response, the market is offering a wide range of “socially aware,” “responsible,” “sustainable,” or “ethical” products.

But what does this all mean?

Understanding ESG

When researching ethical investments, you’ll often come across the term ESG, which stands for Environmental, Social, and Governance. However, different funds and companies may interpret ESG differently, and the term can cover a broad range of issues:

• Environmental: This might include carbon emissions reduction, biodiversity protection, pollution control, or sustainable agriculture.
• Social: This could involve labour rights, diversity and inclusion, human rights protections, gambling or military exclusions, and more.
• Governance: Often includes board diversity, ethical business conduct, anti-bribery measures, and whistleblower protections.

Because ESG means different things to different organisations, it’s essential to carefully review each fund’s investment strategy and supporting documents to understand the claims being made—and whether business practices align with those claims.

Key Considerations When Choosing Ethical Investments

Start by identifying what matters most to you. What are your core values? Which ESG factors do you prioritise? Clarifying your goals will give you a strong foundation for comparing investment products.

Here are some important aspects to examine:

1. ESG Claims

Look for clear and specific commitments rather than vague marketing language. Does the company or fund provide measurable goals? How is progress tracked and reported? Review company reports, market announcements, and official websites for transparency.

2. Terminology

Watch out for terms like “green,” “eco-friendly,” or “carbon neutral” without context or proof. Are ESG-related terms clearly defined and backed by evidence?

3. Product Labelling

Compare the product’s name and description with the actual investment strategy. Does the label accurately reflect its underlying holdings and approach?

4. Investment Strategy

Understand how the fund applies ESG principles. Some funds use negative screening (excluding certain industries), while others use positive screening (actively seeking ESG-aligned opportunities). Look for details such as:

• Revenue thresholds for exclusions or inclusions
• Methodology for selecting investments
• Specific themes or sectors targeted

5. Fees

Ethical or ESG investment products may come with higher fees. Make sure you understand what you’re paying for and how fees compare to more traditional investment options.

Beware of “Greenwashing”

Greenwashing refers to misleading or exaggerated claims that make a product or company appear more ethical, sustainable, or environmentally friendly than it truly is. Greenhushing is when companies intentionally downplay or hide their ESG practices to avoid scrutiny.

An example could be a super fund that markets a “socially aware” option by claiming to exclude tobacco, but still invests in companies generating revenue from tobacco—without clearly disclosing it.

Australian regulators are actively cracking down on greenwashing. Both ASIC and the ACCC have taken enforcement action, including:

• $10.5 million in penalties against Active Super
• $12.9 million against Vanguard Investments

Consumers can find more guidance on ESG investing and how to spot greenwashing on the Moneysmart, ACCC, and ASIC websites.

Getting Support

If you’re unsure where to start, a qualified financial adviser or a responsible investment organisation can help you align your financial goals with your ethical values. They can also help you navigate the complex ESG landscape and choose investments that genuinely reflect your priorities.