These days, the people who trade on the stock market want more than just a strong financial return. They are increasingly choosing investments that also have a positive impact on society.
The coronavirus pandemic has shown that even established technology companies can suffer short-term downturns. Apple, a tech giant, was shaken when its Chinese manufacturing centers temporarily closed last year.
In the long term, however, technology stocks remain a first choice for many investors. Historically, they have dominated global equity markets and continue to grow at a remarkable rate.
Even during the downward spiral of the pandemic, tech stocks like Zoom and Microsoft rose in value as an influx of people started working from home. Now the question for many investors is: How can you find profitable investments without encouraging unethical activities?
Growth in technology stocks
Technology stocks make up 24.2% of the 500 largest stocks in the US, according to investment advisors Morningstar. Facebook, Apple, Amazon, Netflix, and Alphabet (owned by Google) dominate the market with a total value of more than $ 4 trillion.
Tech stocks are also taking center stage in Australia. We have seen the rapid rise of Australian-owned companies like Afterpay and Zip that buy now and pay later.
At the same time, the number of Australians switching to ethical pension funds and ethically managed investment programs has increased. The latter allows investors to contribute money (managed by professional fund managers) that is pooled for investments to generate collective profit.
The estimated indirect investments through these programs have increased by 79% over the past six years.
What is ethical investing?
While ethical investing is a broad concept, it can simply be understood that you are using your money on something that will help make the world a better place. This can range from companies that campaign for animal rights to companies that aim to limit the social spread of gambling, alcohol or tobacco.
Although Australia does not have a strict definition of ethical investing, many managed funds and super funds apply for accreditation from the Responsible Investment Association Australasia. The “ethical” aspect can be divided into three broad categories:
- environment – such as the development of clean technologies or the implementation of climate-neutral production
- Social – such as supporting innovative technologies, reducing social damage such as poverty or gambling, promoting gender equality, protecting human and consumer rights or supporting animal welfare
- Corporate governance – such as fighting corruption, promoting healthy employee relationships or institutional transparency.
As investors, we need to be very careful about the fine print of the companies in which we invest. For example, the accreditation guidelines require that a managed mutual fund that excludes companies with “significant” fossil fuel ties can still include a fund that earns up to a certain amount of fossil fuel revenues.
While the investment manager AMP Capital is accredited, companies can be included that generate up to 10% of their turnover with the distribution and services of fossil fuels.
The terms “ethical”, “sustainable” and “green” are sometimes used interchangeably when it comes to environmentally conscious investing. Shutterstock
5 Tips for Ethical Tech Investing
Many technology stocks are well suited to ethical investing, and you can choose to invest alone or indirectly through a managed mutual fund. Either way, you should do some basic homework first.
1) Monitor the fund or company to ensure standards are being met
In order for a company to be listed on the Australian Securities Exchange (ASX), it must be listed. It is therefore required to submit an annual audit report (audited by external auditors) to the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001.
You can also contact ASIC for more information on an ASX listed company. The equivalent body for American companies is the US Securities and Exchange Commission.
If a company reverses the ethical standards that led to your initial investment, consider withdrawing your investment.
2) Stay up to date on reported ethical violations
Serious news reports are useful in this regard. Amazon, Facebook, and Alphabet are recurring names in reports of unethical technology practices.
While a lot of information about a technology company can be accessed through their own website and sales channels, it is usually embellished and / or handpicked by the company itself. Make sure your information comes from different sources.
3) Think about how employees rate the company and why
Keep in mind that a tech company may be environmentally ethical but will still resort to other issues such as gender pay equality. It is important to listen to employee claims about a company’s internal operations or such insights may not be available.
There are a number of independent websites that report on corporate culture ratings, including Glassdoor.
4) Evaluate the ESG (Environmental, Social and Corporate Governance) score
An advantage of investing in large up medium sized Tech companies are given the opportunity to analyze their ESG score issued by agencies like Refinitiv. This score reflects how well the company adheres to environmental, social and corporate ethical practices Governance related Affairs.
5) Pay attention to keywords
When looking to invest in clean technology, watch out for buzzwords used in company reports. These are terms that appear to be in line with your own ethical investment values at face value without actually delivering them.
For example, “Carbon Net Zero” and “Carbon Neutral” are not the same thing. This is an important distinction to consider when making green investments.
This article by Angel Zhong, Senior Lecturer in Finance at RMIT University, and Banita Bissoondoyal-Bheenick, Associate Professor and Associate Dean Finance at RMIT University, is republished by The Conversation under a Creative Commons license. Read the original article.
Published on March 29, 2021 – 10:13 UTC