Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 310

Profit from your principles

Responsible investing is on the rise. According to the Responsible Investment Benchmark Report 2018 Australia, more than half of all professionally managed assets in Australia fall under a responsible investment umbrella.

In years gone by, conventional wisdom was that acting in accordance with ethical principles involved a trade-off against portfolio returns. However, the figures do not bear this out, and present a compelling argument for investing in a socially responsible way.

What is responsible investing?

The Responsible Investment Association Australasia (RIAA) defines responsible investing, also known as ethical investing or socially responsible investing (SRI), as ‘a process that takes into account environmental, social, governance (ESG) and ethical issues in the investment process of research, analysis, selection and monitoring of investments.’

Broad responsible investment is a broad-brush approach where investment managers systematically include ESG factors in traditional financial analysis and investment decision-making.

Core responsible investment goes further. The investment manager employs one or more responsible investment strategies, including screening, sustainability-themed investing, and impact investing and community finance.

For example, the manager might apply investment screens, such as:

  • Negative screens – systematically filtering out specific industries, sectors, or companies, such as those involved in gambling, alcohol, tobacco, weapons, pornography or animal testing.
  • Positive screens – selecting sectors, companies or projects that demonstrate ESG focus that is superior to industry peers.

This category of investing is growing strongly. For example, in 2017, assets under management by Core responsible investment funds in Australia increased by 188% to $186.7 billion.

Fig 1: Responsible investment by approach

Source: Responsible Investment Benchmark Report 2018 Australia (RIAA)

Does responsible investment mean sacrificing performance?

In previous years, there was a belief that investors had to choose between principles and performance, that giving priority to ethical considerations meant trading off financial returns.

The RIAA’s research does not bear this out. The RIAA found that, as at 31 December 2017, Core responsible investment:

  • Australian share funds outperformed the average large cap Australian share funds over three, five and ten-year time horizons.
  • international share funds outperformed large cap international share funds over one- and three-year time horizons and matched the ten-year performance.
  • multi-sector growth funds (balanced funds) outperformed their equivalent mainstream multi-sector growth funds over three, five and ten-year time horizons.

Source: Responsible Investment Benchmark Report 2018 Australia (RIAA). Past performance is not an indicator of future performance.

How do I know I’m really buying a responsible investment?

Investors who want to allocate their funds responsibly need to have confidence that investments are ‘true to label’. In the world of SRI, this can be easier said than done.

Take for example the ‘ethical index series’ of a large global index provider. The methodology of these indices avoids investing in ‘pure play coal companies’. However, major coal producers including BHP and Anglo American are included, on the grounds that they are ‘general mining’ companies rather than ‘coal miners’.

Some ethical investors may be comfortable with this, while for others such exposure would be inconsistent with their principles.

The RIAA runs a 'Responsible Investment Certification Program' which aims to help investors navigate these complexities to find investment options that match their beliefs, principles and personal values.

If an investment product has been certified by the RIAA it means it “has implemented a detailed responsible investment process for all investment decisions, clearly discloses what that process is, has been audited by an external party to verify the investment process, and has met the strict disclosure requirements of the program”.

Responsible ETFs in Australia

BetaShares offers two ethical funds, that can be bought in a single trade on the ASX, BetaShares Global Sustainability Leaders ETF (ASX:ETHI) and BetaShares Australian Sustainability Leaders ETF (ASX:FAIR). Both funds have been certified by RIAA as a ‘Certified Ethical Investment’*, supporting the view you are getting a ‘true to label’ investment.*

ETHI and FAIR employ some of the most stringent ESG screens in the industry. Companies are screened to exclude those with significant exposure to the fossil fuel industry, as well as those engaged in activities/products deemed inconsistent with responsible investment considerations, including gambling, tobacco, armaments, uranium/nuclear energy, destruction of valuable environments, animal cruelty, mandatory detention of asylum seekers, alcohol, and pornography. The funds have attracted significant investor attention since their launch, collectively growing to over $600 million in assets as at 3 June 2019. And as the tables below show, the indices which the ETFs aim to track have performed well too, allowing investors to well and truly 'profit from their principles'.

 

*ETHI and FAIR have been certified by RIAA according to the strict operational and disclosure practices required under the Responsible Investment Certification Program. See www.responsibleinvestment.org for details.

 

Richard Montgomery is the Marketing Communications Manager at BetaShares, a sponsor of Cuffelinks. This article is for general information purposes only and does not address the needs of any individual.

The Responsible Investment Certification Program does not constitute financial product advice. Neither the Certification Symbol nor RIAA recommends 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.

For more articles and papers from BetaShares, please click here.

 


 

Leave a Comment:

RELATED ARTICLES

Australian ETFs: end of year reviews 2018

Shorting and pairs trading using Exchange Traded Products

The challenges of building a lazy portfolio

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.