These days people trading on the stock market want more than just a strong financial return.
They’re increasingly opting for investments that will also have a positive societal impact.
The coronavirus pandemic showed us even established tech companies can suffer downturns in the short term.
Apple, a tech behemoth, was left reeling when Chinese manufacturing hubs were temporarily shut down last year.
In the longer term, however, technology stocks remain a first choice for many investors.
Historically, they’ve dominated global stock markets and continue to grow at a remarkable rate.
Even during the downward spiral of the pandemic, tech stocks such as Zoom and Microsoft soared in value as an influx of people started working from home.
The question for many investors now is: how can one find profitable investments without supporting unethical activity?
Growth of tech stocks
According to investment advisers Morningstar, technology stocks account for 24.2% of the top 500 stocks in the United States.
Facebook, Apple, Amazon, Netflix and Alphabet (which owns Google) dominate the market, with a combined value of more than US$4 trillion.
Tech stocks also take centre stage in Australia. We’ve seen the rapid rise of “buy now, pay later” companies such as Australian-owned Afterpay and Zip.
At the same time, we’ve seen an increase in the number of Australians moving to ethical superannuation funds and ethically-managed investment schemes.
The latter lets investors contribute money (to be managed by professional fund managers) which is pooled for investment to produce collective gain.
It’s estimated indirect investment through these schemes has increased by 79% over the past six years.
What is ethical investing?
While ethical investing is a broad concept, it can be understood simply as putting your money towards something that helps improve the world.
This can range from companies that advocate for animal rights, to those aiming to limit the societal prevalence of gambling, alcohol or tobacco.
Although there is no strict definition of ethical investment in Australia, many managed funds and super funds seek accreditation by the Responsible Investment Association Australasia.
The “ethical” aspect can be grouped into three broad categories:
environmental — such as developing clean technology or engaging in carbon-neutral manufacturing
social — such as supporting innovative technology, reducing social harms such as poverty or gambling, boosting gender equality, protecting human and consumer rights or supporting animal welfare
corporate governance — such as being anti-corruption, promoting healthy employee relations or institutional transparency.
As investors we must be very careful about the fine print of the companies we invest in.
For example, accreditation guidelines dictate that a managed investment fund excluding companies with “significant” ties to fossil fuels could still include one that earns up to a certain amount of revenue from fossil fuels.
So while investment manager AMP Capital is accredited, it can still include companies earning up to 10% of their revenue from fossil fuel distribution and services.