Uncensored Money Season Five: Mel Talks Ethical Investing With Alexandra Brown

Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 23/06/2024

Show Notes

Have you always wanted to invest ethically, but never known whether it was worth it?

In this episode of Uncensored Money, ethical investing expert Alexandra Brown comes on to talk to Mel about all things ethical investing. The CEO and powerhouse behind Ethical Invest Group, Alexandra is a champion of ethical and sustainable investing.

Discussing all facets of ethical investing, from the different types, to the suitability of each, tune in for a discussion that will have you thinking about what ethical means to you.

Books and resources mentioned in this episode

If you're on insta, come play over at @MelBrowne.Money and make sure you’re signed up to Mel's Money Musings for more tips, tricks and ideas on how to best work with your money.

Finally, if you love this episode please make sure you subscribe and leave us a review.

Transcript

Mel: Hey everyone. I'm Mel Browne. I'm an ex-accountant and ex-financial advisor, so I have the theory, but I also have the life experience. I'm now financially independent in my own right after coming back from less than nothing in my early thirties. I want this podcast to be like a chat with your girlfriends about money. My aim is to help you discover why you're behaving the way you are with money, to suggest new ways you might behave that are a better fit for you, and to increase your financial literacy and financial confidence. I hope it inspires challenges, educates and empowers you with how you do money. So let's get into it. Welcome to Uncensored Money.

Mel: I cannot tell you how excited I am for today's podcast. It's with the very fabulous Alexandra Brown, and it's all about ethical investing. And I'm gonna warn you, I think it's probably something you're gonna wanna listen to twice because we've got terms and different concepts we talk about that sometimes might take a couple of times to go through.

Mel: And then at the end, we give so many resources and free tools that you can use if you're interested in ethical investing. So stick with it. But a little bit about Alexandra. She's a CEO and powerhouse behind Ethical Invest group where she champions ethical and sustainable investing. She's got a knack for making investors, advisors, and finance pros alike, not just understand, but also get excited about making their money work for good, which you'll absolutely hear in this episode. She's also co-founder of Altiorem, which is a kind of a treasure trove, a sustainable finance library built by the community. And we've linked that in the show notes. Plus, she's an active member of the Ethical Advisors co-op, where she's in great company with professionals who are all about ethical and sustainable investment advice. She's on a big mission to make sustainable investing mainstream. To do this, she runs a fantastic course for financial advisors, sustainable investment advice, teaching financial advisors how to weave in environmental, social, and ethical preferences. And she's got one for investors coming up at the end of this year. Her ultimate goal to boost our skills swiftly and effectively driving the sustainable development goals forward with every informed values aligned investment decision we make. I cannot wait for you to listen to this episode. Enjoy. Alexandra, thank you so much for joining me today. I am so excited about this conversation.

Alexandra Brown: Thanks so much for having me, Mel. It's so great to be here. Can't wait to share with your community.

Mel: No, it will be good. Before we dive into ethical investing and all of the geeky things I wanna talk to you about and all of the important things I wanna talk to you about, tell me a bit about you. What do you do, and how did you end up working in the area of ethical investing? Just a small question, <laugh>.

Alexandra Brown: A small question. I know. It really has been such a journey with lots of twists and turns. I would keep it as simple as possible, and I'm going to start with when I left high school, <laugh>, which was a long time ago, but this is important because I went to university and I studied natural resources management or environmental sciences, it's called now. Hmm. And I was specialising in habitat rehabilitation. If a mining company say went through the land, and I would come in after them and repopulate it with all the native fauna and flora and what have you. So I was really into the environment. In fact, I dubbed myself the hippie capitalist. Oh, I love that. <Laugh>. I was very into conservation, but I also really loved the idea of money. I didn't have a lot growing up, and I just knew that it provides like freedom and choice.

Alexandra Brown: So I valued money as well, but I didn't end up finishing that degree. I became a chef instead, A real smooth transition. Yeah. <Laugh> into chefing, <laugh>. And I was a chef for over a decade. It was a great time of my life in Alice Springs and Sydney traveling. And by that point I was working 80 hours a week. I was running three and four star kitchens and winning awards. Like I was really top of my game, but I knew that I couldn't do it forever. And I was seeing these people with something called investment portfolios, and they were seemingly making money while they slept. And this is back in 2010. And back then my financial adulting plan wasn't there, <laugh>. And I'm so impressed and so grateful that you have this. But back in 2010 that wasn't there. And I instead took myself back to uni and did business and finance was in academia for almost a decade as well.

Alexandra Brown: And by the end of that, I was heavily researching the ethical investing and traditional portfolios and the performance between the two that was kind of there. And then that's how I got into the industry. In 2015, I started working for a financial advice firm, and they specialized in ethical investing. And I was going to be a financial advisor, but as much as I respected you saw the light. Yeah. <Laugh>. I, I, exactly. I completely respect and admire advisors, and I'm so glad that we have them there. But I didn't really wanna learn about Centrelink and insurance and those things. I just wanted to do ethical investing. And in 2016, I actually handed in my resignation. Thankfully, the financial advisor rejected my resignation <laugh> and said, please, could you stay on as an ethical investing consultant? And I've been consulting ever since with advisors across Australia.

Alexandra Brown: In 2019, I co-founded a sustainable finance library, which we can talk about a bit later. Mm-Hmm. In 2021, I released a course for financial advisors to really help them understand how to bring ethical investing into their services, how to confidently talk to clients about all their values and things like that. And then towards the end of last year, I was like, there's another piece of this puzzle, and that is investors, and I really wanna help investors get up to speed with this. And I have a course coming for investors later this year. So I think overall I've come full circle because yeah, instead of back in the day, just rehabilitating the environment after one company just destroying the land, I'm now helping investors and advisors shift entire industries to conserve and protect land and society.

Mel: Mm. Oh my gosh. That is such a full circle. And as part of why I wanted to talk to you today, because you do have that breadth of knowledge and you've seen both sides of it, and you are the educator to the industry, which is that for me exactly who I should be talking to. So I'm excited. So when it comes to ethical investing, before we dive into the nitty gritty of it, there's so much to consider. One of the things that Lawsie and I talk about is what I think is ethical is very different than what she thinks is ethical. So for her, she's very much about sustainability. That's really where it starts and ends for her. Whereas for me, it's sustainability, but it's modern slavery. For me, that is so important to me. If I can't have one without the other, and for someone else, it will be wildly different. Where do you even start <laugh> when you're thinking about ethical investing?

Alexandra Brown: I think when you're first starting, what you've just said is so true. Everyone has a different idea of what is ethical To me. You could quite simply even just grab a piece of paper in a pen and almost like a journaling exercise. Write down what does ethical mean to me? Mm-Hmm. And what is most important to me, and is it modern slavery? Is it sustainability? Is it climate change? And really just get a sense of the most important things that you want to see changed in this world. Simple question. I think in this little journal, I'm just gonna call it a journaling exercise, you could cover like four different things. So what does ethical mean to me? What approach do I want to take? So do I want to avoid the harmful, do I want to contribute or support the positive? Or do I wanna use my shareholder power?

Alexandra Brown: What approach fits well with what I wanna do? Then look at like, what are the companies and industries that I wanna support or avoid? We've got those issues. We've got those environmental or social ethical issues. What companies and industries do we wanna support or avoid? Because I know from my own experience, over a decade ago, I saw a news article, and it was a manufacturing building overseas, they're manufacturing parts for mobile phones, and they had suicide nets around them because the workers were being prevented from committing suicide. And, sorry, I should have put a trigger warning in that.

Mel: That's awful. That's okay. I think it's important that we talk about it. Yeah.

Alexandra Brown: <Laugh>. Yeah. That was in there. And so over a decade ago, and I saw this, and I was like, ever since I have boycotted that mobile phone company? Mm-Hmm. Because it just meant something to me. So quite often, we'll find these companies that we don't wanna see in our investment portfolio, make a list of those, or are they companies that are doing really well in sustainable fashion or something like that, that really aligns with you and you're like, that's something I really wanna support. So have a look at those. And I think the fourth question that you could ask yourself is, how green do you wanna go? Mm. Right? Because when we're in ethical investing, we can have a mostly traditional portfolio with a few little companies or a little renewables fund or something that we have on the side. We can have that. Or we can go really deep green and even consider where our savings is. Our savings is in a bank, and that money's not just sitting there waiting for us to withdraw it. It's being used. Does our bank or our banking even align with our values? Mm-Hmm. So I think it really depends on at what level do you wanna go?

Mel: And it is a real rabbit warren, isn't it? I know. That's something that I discovered. It was, it's almost like when you lift one, it's like playing whack-a-mole, almost like one pops up and it's like, oh, now I have to consider this. Now I have to consider this <laugh>. But I really like the stepped approach. I really like starting with, okay, well what's important with me? And then what do I wanna put towards and what I wanna step away from? And then gradually, gradually moving along and figuring that out. But as we're trying to figure that out, I've found even as an advisor, some of the terms and some of the references and some of the descriptions are so ambiguous, almost contradictory. Do they just mean the same thing? And is this just something that someone's made up? And actually it means nothing. So what I wanna do is, rather than people see things and give up or think they mean something, they don't, as they're doing the exercise you talked about, I wanna talk about four of the big ones that we see a lot, and just really discuss what they mean and are they important, or are they just corporate speak, if you like.

Mel: So the first one is impact investing. So this is something that you hear a lot about. As you start to dive into this space, what is impact investing and is that something we should care about?

Alexandra Brown: It's very tricky because I've got one foot in the industry and one foot in the investor world, <laugh>. And when it comes to impact investing, we want our money to be impactful. Mm. Okay. And so it's natural to say, I want to get into impact investing, but industry speak wise and impact investment is very specific. And I'll try not to go into too much detail, but two of the most important things in impact investment needs is it needs to be measurable. The impact needs to be measurable, and there needs to be some kind of additionality. They use the term additionality, and that just means that the positive impact created by the company wouldn't be possible without the investor. Mm

Mel: Mm-Hmm.

Alexandra Brown: <Affirmative> additional, this was generally reserved for private equity investments or IPOs because that company wouldn't exist or they wouldn't be able to produce that good or service without that.

Mel: And an IPO is an initial public offering. So we're a company's first coming to market.

Alexandra Brown: Yeah, Thank you. And now we're really moving into, well, we wanna make impact investing accessible to more people. Mm. And the definition has been broadened a little to include public equities. You can now invest in a managed fund that is an impact fund. Mm-Hmm. <affirmative>. And the reason why I actually agree with this personally is because I speak to impact fund managers, and I believe that they are creating that additionality because they are engaging with the company. They're speaking to the company as an example. They might go to the company and say, look, let's have a look at the impact that you are having. What are the different things that we can measure? Maybe let's have a look at your water usage, for instance. Mm-Hmm. <affirmative>. So how can we reduce how much water you're using? And we all know that what gets measured gets managed.

Alexandra Brown: Okay. Mm-Hmm. The company is now reducing their water usage and they've got this great impact metric that they can disclose. Mm-Hmm. <affirmative>. So the fund has created that additionality, the company is doing better because of them. It actually is a bit two way, because for the fund manager to say that they are an impact investor, they need to disclose impact measurement by helping companies create more impact measurement and impact metrics. Then they're also helping the fund manager. 'cause They can disclose more impact measurement and impact metrics. Yeah. But overall, this with the company's still getting better.

Mel: Do you think impact investing is something that public companies are a bit scared about? Because it's almost like they're having to put up their hand to say, we haven't been doing this in an impactful way.

Alexandra Brown: Yes. And how much of that conversation is behind closed doors as well? Yeah. Yeah. There's still a lot to be said about transparency.

Mel: Okay. So impact investing almost primarily through, is it primarily through a managed fund or is it, I can look for companies that are wanting to be impactful?

Alexandra Brown: So is impact funds? Yes. But really I think it's a bit difficult for retail investors to have access to a lot of impact investments because

Mel: Gotcha.

Alexandra Brown: they include private equity and that kind of thing

Mel: Okay. So impact Investing's kind of the big end of town, not necessarily for you or I, yeah.

Alexandra Brown: Correct.

Mel: Yes. Yeah. Okay. Awesome. What about sustainable investing? That one feels like it makes a bit more sense.

Alexandra Brown: Yeah. And I use ethical investing and sustainable investing quite interchangeably. Mm-Hmm. For me, they both just mean, it's like an umbrella term. It means either avoiding harm, benefiting, or creating positive impact, or using our shareholder power. But for me, sustainable investing I think has just that little nuance of sustainability, funnily enough that long term term

Mel: General title, yeah. <Laugh>. I know <laugh>,

Alexandra Brown: That's why for many years I've always used ethical investing, and now I'm really starting to go towards sustainable investing because it's very important to me personally that we create a sustainable future for sustainable investing. I think that nuance is, it's important because it talks about the interplay or the interconnectedness of companies with the environment and society and that feedback loop from environment society back to the company, and also the consideration of future generations, which is mm-Hmm. Sustainability. I think it's probably better if I break that down with an example. Yeah. Tricky. So say you've got a fashion company, they use a lot of water, or they're using a lot of land to farm the textiles that they need. So they're impacting the environment, but they're also dependent on the environment. With climate change, we've got extreme weather conditions. So farming the cotton, for example, may become harder, or we've got excessive droughts that's making water more scarce. The company is actually impacting the environment, but also dependent on that environment. And I think this is where sustainability discussions come in. So how can a company respect the environment of society now and also for future generations?

Mel: And sustainable investing would be something that more of us could get access to. 'cause Certainly, I know I have ETFs, for example, that are sustainable ETFs.

Alexandra Brown: Yes. But the definition of sustainability will vary. A sustainability fund, they call themselves sustainability, but really they're just a low carbon footprint fund. Mm-Hmm. So they're only really dealing with climate change. But then there's other sustainability funds. It's all in the name, and they are looking at healthcare and education and financial inclusion and stuff like that.

Mel: I don't know about you, but sometimes I wish there was an easy way, a silver bullet, a magical unicorn, a fairy godmother ready to grant me three wishes. I mean, think of all the miracle diets, fitness fads, promising a six pack in six weeks, or finance bros promising riches by following this easy formula. Do you believe a word of it?Well, the part that longs for a quick fix might be taken in, but you are smarter than that. Personally, what I believe in is consistency, educating myself, finding an expert to help me, surrounding myself with a community who are going to motivate me to keep going and make me feel like I can do it because they're doing it too or are further down the road than I am. That's exactly what we've created inside the My Financial Adulting Plan. If you feel like you're on top of your finances, you have a plan for this year that you're super comfortable with and have everything you need to make that happen, then just ignore this ad. But for the rest of you, make sure you check out my life-changing 12 week course or for less than the price of a cup of coffee a day. Head to the show notes to join the wait list for the next round. Or you might be lucky enough to find that the doors are open and you can join now.

Mel: But I love that. 'cause Then it comes back to your very first exercise. It's sustainable investing, and this is the thing we hear sustainable, and we just go down this short window or this very narrow tunnel. But actually it's figuring out what does ethical and sustainable mean for me? And then going and finding those investments that fit. Because as you said, lots of things can be called sustainable, but it doesn't mean that that fits my definition of what is important to me. Yeah. Okay. Awesome. ESG, these are three letters that are thrown around a lot. <Laugh>, Environmental Sustainable Governance. So can you talk to me more about that?

Alexandra Brown: Yes. So ESG, let's just consider it as an acronym. Okay. It is Environment or Environmental Society, or Social and Governance.

Mel: So, sure. Oh my God. Can see my flu talking sustainable <laugh>.

Alexandra Brown: Okay. It's totally fine. It's totally fine. Just another acronym. But the thing is it's put, its whole new meaning now. Yeah.

Alexandra Brown: To break it down, like say if we were to use ESG for a company, so we were looking at the ESG performance of a company, then we would look at how that company is performing relative to E, the environment, S, social and G governance. And if we have maybe an example of the fashion company again. Okay. Mm-Hmm. <Affirmative>. So the environment. So how are they conserving water? How are they polluting the land? How are they replenishing the ground after they've harvested? Those kinds of things. So how they're interacting with the environment and how they're interacting with society, not just the communities around the farming, but also their workers and employees and all the S factors, <laugh> that would go into that. And then the G is governance. So how the company is internally. So do they have policies and procedures around workers' rights, around equality, around diversity? Are they transparent in their disclosure around those climate change risks that I was talking about before? Mm-Hmm. So if you look at a company through the ESG lens, then you can get a good feel about how good they are or how ethical they are. Mm. For lack of a better word.

Mel: You said something though, and I know I'm kind of skipping ahead. You said something though, that companies can kind of just, and there's a term that we've heard, we are hearing more and more about greenwashing, where I can just give myself the illusion and give myself the tick of that, but actually doesn't really mean very much.

Alexandra Brown: Yes, absolutely. That's why there's a lot of flack at the moment about ESG, the term ESG, and also ESG ratings. Because what you can find is some of the bigger companies have a lot more spending power to create those policies and all of the documentation. As an analyst, for instance, or even as an investor, if you're looking there, you've got all that information available to you. And then you go to a smaller company that perhaps doesn't have that. Mm. And you can't find any of the information, so you just assume that, well, they don't have a diversity policy, or something along those lines. So it definitely has an influence, which is why I personally steer clear of using the term ESG investing, just because for me, it doesn't mean sustainability. And I think that's what people equate with. They think, oh, I'm doing ESG investing, but there's hundreds of ESG metrics. So what are you actually focusing on in your investments?

Mel: Hmm. This feels like of the fall, the one that you'd almost just put to the side a little bit. Yeah.

Alexandra Brown: Yeah. As a portfolio manager, there is a very important strategy that they can use called ESG integration. Mm-Hmm. <Affirmative>, I won't go into it, but when you're building a portfolio, ESG integration is really important.

Mel: Mm-Hmm. <affirmative>. Yep. That's good to know. The final ones, thematic investing, which is something that crops up again and again, if I'm looking at ethical investing, can you tell me about that?

Alexandra Brown: Yes. I actually really like thematic investing because what you see is what you get. If you've got a sustainable themed fund, normally you can find out what themes they are focusing on. And I feel like you can align that more with your values. If recycling is important to you, you can find a themed investment that focuses on water and waste management, for instance. Mm-Hmm. <affirmative>. If you are a teacher and maybe education is important, there are education themed, or if you're in the medical industry, you can do access to healthcare and medical innovation. So I feel like for investors, this is actually a really exciting aspect of ethical investing, is that we can really align it with the things that we care about.

Mel: Yeah. And certainly, I feel like there's so many of more of these popping up now. Certainly if I look at climate change, there are so many where they're very, even if it's companies that are looking into different ways of dealing with electricity, et cetera, that is not traditional, and you can invest there. So yeah. Feel like thematic investing is something that we're seeing more and more as people demand it, perhaps.

Alexandra Brown: Yeah, I think so too.

Mel: With these different terms and different strategies, is one better than the other? Or is it more about what's right for each of us? What's your thoughts with that?

Alexandra Brown: I'm going to answer this question from three different perspectives, from the individual perspective, from the portfolio perspective, and then from the global perspective, because I think that changes things. Mm-Hmm. <Affirmative>, from the individual perspective, I would say that one is not better than the other. Because really it boils down to what are your values, first and foremost. And then finding a strategy to align with that. If climate change is important to you, then perhaps you want to look at one of those funds that is divesting or excluding fossil fuels. Mm-Hmm. The strategy is divestment. Yeah. But if climate change is important to you, maybe you want to, we just talked about thematic investing, looking for a fund that invest in renewables that would also meet that value, or a positive screened investment where you are investing in a fund that supports low carbon footprint companies.

Alexandra Brown: We have that option. So I think what comes first is the value, and then you can find a strategy or an approach that suits that value. So I think that's why it's not necessarily important for investors as to which one, for a portfolio manager, I think, again, it's not important because in general, they're going to use a variety of strategies and approaches. Mm. And they should be, I mentioned the low carbon footprint strategy using a positive screen. So if you're a portfolio manager, you've got a hundred companies and you want to rank them from high to low carbon footprint, if you are using a positive screen, then you might heavily more heavily weight. So put more of the low carbon footprint in and lower weight, or less of the high carbon footprint. Mm-Hmm. But you've still got those hundred stocks all in your portfolio. You as an investor are still investing in those high carbon footprint companies, but you just, just less of them. But if the portfolio manager combines that with a negative screening strategy or a divestment strategy and says, I'm also going to exclude any high carbon industries or fossil fuel companies and things like that, well then now you've got a portfolio that's more aligned because you've combined strategies.

Mel: Go back to where we started. It really feels like if, unless you do the work around what's important to you and what's your values, then it's really hard to go down the road of ethical investing because you don't know what I wanna include. I don't know what I don't wanna include. I don't know if there's a theme that I wanna have in my investing. Like until I start with that, it's almost impossible to know, because there's no should when it comes to this. It's, well, actually what's important to me.

Alexandra Brown: Yeah. A hundred percent. Mel, I think you've hit the nail on the head. And that actually lends itself to the third perspective that I wanted to share with you, which is the global perspective. Mm-Hmm. Because this actually is my values coming into play here, because the sustainable development goals back in 2015, most governments and states agreed that we would help achieve these global goals as 17 goals by the year 2030. Mm. These global goals, they've got different targets underneath them. Things like improving access to education, reducing poverty, reducing inequality, and conserving our land and water and what have you. These are really important global goals that we're all trying to achieve. But the thing is, we are falling drastically short of achieving these goals by 2030. And unless we all start moving capital towards impacting these sustainable development goals, and I'm talking about investors, companies, governments, all of us, we need to be moving this money. We are not going to achieve them for them on a global perspective. I think that the important approaches, which was the question, are not the risk management and the divestment, but all of the positive ones. So the max thematics, those positive screening, the impact investing, getting money to where it's needed.

Mel: And it's interesting, isn't it? 'cause I think a lot of people would be marching for climate change on the weekend. And really, really, especially if you've got kids and you are really concerned about what's gonna be here for the next generation, and yet not realize that in your retirement funds or even in your investing or your spending, you are actually contributing to that very thing that you are marching about. So this is really important. As you said, if we are gonna hit targets, then actually we can help to achieve that in some way with how we invest. One of the questions though, and I think we really have to talk about the elephant in the room, and that's, we invest to get a return. We don't invest just to feel good. I wish that was the case, but we also invest because we wanna return inside my community. One of the questions I'm asked every single round is, are the returns on ethical investing better or worse than the returns on a normal investment? And often the concern is that they're worse. Can you talk more about that?

Alexandra Brown: Yes. Returns and performance is so important because as you say, this isn't philanthropy. Mm. This is investing. We do expect some kind of return for our investment. Obviously I've spent a lot of time with advisors. It's critical for them because they're trying to help investors meet their financial goals and objectives. So yeah, it's always the first thing that I get asked.

Mel: Yeah, that's nice. But <laugh>, I can imagine. I can hear it. <Laugh>.

Alexandra Brown: True. It's true. I mean, long story short, there's no significant difference in returns over the long term. Okay. Now this is based for me. I did over three years of deep research on this at university, and I was modeling traditional versus ethical portfolios. My literature review was over 300 journal articles. Some of those journal articles were meta-analysis of 2000 research articles.

Mel: Wow. Yep.

Alexandra Brown: On this very topic of will you have a financial penalty if you invest ethically? And the majority say no significant difference in returns.

Mel: So when you say no significant difference, what are we talking?

Alexandra Brown: So in other words, not statistically significant. And so it's classed as nothing.

Mel: Oh, wow. Yeah. Okay. I think that would shock people.

Alexandra Brown: Yeah. Yeah. Yeah. And that's over the long term. But in saying that, Mel, we do have market fluctuations. Mm-Hmm. And across 2022, ethical investments in general performed very badly. And a big influence on that was the war in Ukraine. Mm-Hmm. It just impacted energy stocks, energy prices shot through the roof. Yeah. And so energy stocks, their share price went up. If you're in an ethical fund, most ethical funds have low weight in energy stock. So they didn't get that tailwind of the energy boom. Yeah.

Alexandra Brown: Yeah. For over 2022 and a little bit of 2023, they really underperformed compared to traditional portfolios. But we're in 20, 24 now, and most of them, if not all of them, have bounced back. So that's great. Yay. But you're in super, you know that that year has impacted you. You know that it's an important consideration. But I do just wanna balance that with, it has happened in the reverse way back in the .com boom. So in the late nineties, ethical funds back then were really heavy in tech stocks, because back then we didn't know as much about what makes a company ethical. Back then. If you didn't manufacture and make goods and services and plow the land and that kind of thing, then you were class as ethical, which is

Mel: <Crosstalk> <laugh>.

Alexandra Brown: And that theory still exists. I'd spoke to an advisor only two years ago, and I said, oh, do you ask your clients about ethical investing? And he said, oh, if I do, but then I just turn around and say, well, it's more expensive and you'll just be investing in Google and Facebook. Oh,

Mel: <Laugh>. Wow!

Alexandra Brown: No, there's definitely some old school thinking still around back in that tech boom. Ethical funds really outperform traditional funds. Mm-Hmm. <Affirmative>. But it's their short-term market fluctuations. And we're looking at long-term investing where there is generally no difference in returns.

Mel: And that's the thing, isn't it? And I think with new investors, particularly if you'd entered the market and you'd in 2022, you might be very nervous because you would've seen your share price go down, or your unit price go down. But we don't invest for 12 months. We're all investing for the long term. So as you say, I think the reassurance for people to hear is that over the long term, very little or no statistical difference in between an ethical and I wanna say unethical and ethical and normal <laugh>.

Alexandra Brown: I know I call it a traditional fund,

Mel: But I'm hoping that

Alexandra Brown: Eventually the ethical is just the mainstream

Mel: The accepted. Yes.

Alexandra Brown: Yeah. Yeah.

Mel: I think a question I really wanna ask is popular investing at the moment are ETFs, particularly things like ASX 200, which is the top 200 shares in the Australian share market, or the S&P 500. So top 500 shares in the US market. So index funds. Do you think these types of investments can be ethical? And what might people look at instead?

Alexandra Brown: When it comes to ETFs? I think that those market indices are probably not going to sit well in a ethical portfolio

Alexandra Brown: Because you are investing in the majority of the market, and the majority of market companies are not. If you are in the ASX 200, then you're looking at financials and materials. So mining and banks, if you're in the American one, the top ones are the tech companies, the big tech companies, and that kind of thing. So we've just discussed that nowadays, we look at, at tech companies, and we see issues with servers and energy requirements and conflict minerals and ai. Now, the ethics around ai, so having those in your portfolio has some questionable ethical considerations. Right? Mm.

Alexandra Brown: But in saying that, not all ETFs are like that. And I just wanna preface this with saying this is not an investment recommendation. I'm going to talk about a fund, but one that I think is an ETF that is doing really, really well in this space. I have not reviewed their financial performance for a long time. So definitely not an investment recommendation. But the ETFs from beta shares, they're called Ethi and Fair. Mm-Hmm. One's Australian and one's global. They have done a wonderful job, I think, in screening out and screening in companies and documenting that their disclosure around it is really topnotch. So for instance, if one of the issues that they're looking at is tobacco, they'll have the tobacco screen. Maybe there's like a 0% threshold if you produce or manufacture tobacco. Mm-Hmm. <affirmative>. And a 5% threshold if you sell tobacco products. So that means those thresholds, we're talking revenue.

Alexandra Brown: So a 0% threshold means we've got no tolerance. It doesn't matter how much revenue you make from this. We are not including tobacco producers or manufacturers. If it's 5%, well, like for a sale of tobacco products, that might be a supermarket. So as long as the supermarkets revenue of selling tobacco products doesn't go over 5%, it can remain in the portfolio. They really outline those thresholds and their explanations as well. They've got explanatory notes for each of their screens. So it can be done. I think they're a good example. Even fossil fuels, they separate between direct fossil fuels or service providers of fossil fuels. Or even if you are a fossil fuel bank or insurance company as well, they really break it down. If you are financing fossil fuels, how do we respond and how do we include them or exclude them from our portfolio? So I think that it's definitely possible to invest in ETFs. But the key takeaway is look under the hood. Hmm. Look at their process and ultimately look at the companies that you're actually investing in.

Mel: Yeah. And I'm reminded, one of the reasons I remember diving into ethical investing back in the day more seriously than perhaps I had in the past was I watched a TED Talk by an oncologist where she talked about the fact that she was operating on cancers or treating people that had cancers during the day. And she was horrified when her financial advisor came to talk to them that they were investing in tobacco. And you could be doing that if you were in just a standard index fund. So again, if that doesn't matter to you, and this is where there's no judgment, if it doesn't matter to you, that's not problematic. But if it does in one of your values is no, I, I know someone that died of that, I cannot have that in my portfolio, then you're not gonna wanna be investing in a company that has that as part of their revenue.

Alexandra Brown: Yeah. And that's so true. And that that was Dr. Bronwyn King. Thank you. And I thank you. It wasn't just, she started the whole tobacco divestment movement. That is just a great example of how one person's conviction in an area can create just ripples and waves of change.

Mel: Yeah. She was extraordinary. And I'll link that TED talk if anyone's interested in that. 'cause She's phenomenal. And she did create a, like a wave of change. 'cause She just ran with it. She was like, if I don't know this, others don't know it. So I'm going to make this part of my mission. So we said at the start, when it comes to investing, what are some things that I could do? And we talked about writing down values. So if someone's listened and really felt, you know what, I need to change how I'm investing, or I need to even park how I've been investing in in future, look at how I'm investing future funds, for example. Or I'm gonna go and look at my super, what should I do? So if someone was interested in ethical investing, what are some steps you think they should take in order to do so successfully? Again, a small question. <Laugh> <laugh>,

Alexandra Brown: I'll try and keep this as quick as possible. Would it be okay, Mel, if I just mentioned a free resource for each step

Mel: Please! Absolutely. Okay. <Laugh>, and I'll link it up as well in the show notes. Fabulous.

Alexandra Brown: Fabulous. So all freely available and will help through this process. We talked about outlining your values and getting clear onto what's your top priority. So that's definitely step one. The free resource that I am gonna suggest is actually one from me. They're not all from me <laugh>, but this one is, it's called Money Talks, and it's a free downloadable that you can help to prioritize things. Step two is,

Mel: I will definitely link that one. Yeah. Nice.

Alexandra Brown: Thank you. Step two is the strategies. So we're looking at those. Are you working out whether you're gonna avoid support, impact, or engage? And my free resource there is the Sustainable Finance Library Altiorem. It's free to use and it is a wealth of information. So Altiorem is Latin for higher as in lift. We wanted to lift the industry higher. There's over 700 reports in there, all based on different ESG issues or sustainability, sustainable finance, and these different strategies and approaches. And we have summarized them. So really great for an investor that is looking to learn about this space. There's also some expert guides there. I wrote one of the expert guides on gender lens investing. So investing in a way that helps empower women is something of interest. There is an expert guide there too. So step two is learning those strategies and approaches.

Alexandra Brown: The third one is researching investments and your super or your pension fund, and having a look at what is available out there. And deep diving into the different options that you have, whether it be stocks, but also, as I said, investments in super. And my free resource for that one would be responsiblereturns.com au. This was developed by the Responsible Investing Association of Australasia. So if you're in Australia and New Zealand, it's really good there. You can put down the issues that you want to support and avoid, and then list out some different Super, KiwiSaver and investment funds that might be suitable for you. Again, always go deep <laugh>, look at the holding and in this tool you'll see links to holdings and things like that. So it makes it nice and easy for you to do. Digging deep and looking at the holdings is definitely step four, look at the responsible returns. But there is another resource that I'd love to share, and that is the Ethical Advisors co-op. So the Ethical Advisors co-op, they have developed something called LEAF Ratings. So they're at leafratings.org. And they have taken a whole host of Ethical and Sustainable, I use that term loosely, ethical and Sustainable Investment and Super Funds. And they've done some of that early research for you.

Mel: Oh, I love that. Yes.

Alexandra Brown: And it's free. You can click on each fund and there's like a two page download. What I love about this is that it actually brings to your attention any holdings within that fund that might be of concern, if it's maybe the big banks or high carbon industry, Transurban, that kind of thing. So it lists out some companies that they just wanna alert you to, and so you can make a decision whether you align with that or not. And so if you get all of this in place, I think we can make more informed ethical investment decisions. I think the big thing is just get educated. If you do have an advisor, bring it up with them. Lean on their knowledge. If they're confident in this area, hopefully <laugh>. I think, Mel, you've done such a great job with My Financial Adulting Plan because you've laid the foundation, helping people to understand even just all of these investment types. What is an ETF and how does all this work so that it makes my job easier. I've just gotta do a little sustainable investing overlay <laugh>, you know? Yeah. So it's really great.

Mel: I have loved this conversation. I've loved all the tools. Just feel like people can listen and feel empowered that when they go to start looking, they know where to start. So thank you so much. I guess my question for you as we finish is kind of a different one, and that is, I kind of think that a lot of the conversations that I've had with people over the years is very much around, can I honestly, does it really make a difference if I'm investing 20 bucks a week outside super, or if I've got a lazy 50 or 250 or even more in Super, does that actually make a difference? Does how I invest genuinely make a difference? What would your response to that be? Is this even worth doing?

Alexandra Brown: A hundred percent worth doing. And I think that if we want our money to talk, we can be conscious buyers. We can avoid the fast fashion shoes, or we can avoid the plastic wrapped veggies, but this is our money talking, but it's a whisper.

Mel: Mm.

Alexandra Brown: You know, by using our investments and our super or our pension funds, we are literally shouting from the rooftops that we don't wanna invest in sweatshops. We don't wanna invest in modern slavery or polluting companies. We are literally shouting to let the companies know what we care about and how we want to see a more sustainable future.

Mel: I love that. It's kind of the difference between a whisper in a roar. Yeah. Yeah. That's awesome. Oh, thank you so much, Alexandra. I'm gonna link all of your information as well as all the different resources, et cetera, that we've talked about in the show notes. If you are interested in deep diving into this more, then where can people find more of you? I know you said you've got a course, it's coming out later this year.

Alexandra Brown: I would just recommend follow me on Instagram. So @ethicalinvest is probably the easiest spot, and there you'll find everything that you need.

Mel: Beautiful. I will link that as well. Fantastic. Thank you. And I know you're coming to talk to my community in a masterclass next week, so I'm excited for them. 'cause They get to ask you questions and more, which is part of the Financial Momentum Club, which is the membership you get invited to after. But thank you for your time today, Alexandra. I love that you have done the full circle and I kind of love that you have chosen not to be an advisor, but the consultant to the industry and to investors. I think that it absolutely needs you.

Alexandra Brown: Thank you so much.

Mel: If you enjoyed this episode, we would love it if you subscribed and give us a review, then make sure you come and play with me on Insta. I'm at @melbrowne.money Remember there's an E on the end of Browne. I'm one of those fancy Browne's, and don't forget to check out the show notes for even more ways you can work with me to transform your finances.

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Uncensored Money Season Five: Mel Talks Ethical Investing With Alexandra Brown

Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 23/06/2024

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