For over 30 years, Ethinvest has had a strong focus on helping its clients invest their money ethically. Trevor Thomas CFP® talks to Jayson Forrest about the practice’s vision, philosophy and approach to ethical investing.

Founded by father and son, Mac and Ross Knowles in 1989, you could say ethical investing is in the DNA of Ethinvest. It has an enviable pedigree in the ethical investing space, proudly being the first financial planning company in Australia with a dedicated focus on ethical investment.

Both founders have always had very strong values around business, environmental and social ethics. As the current Chair of Ethinvest, Ross staked his claim early as an ethics crusader, having been the founding co-president of the Responsible Investment Association of Australasia (RIAA) and editor of Ethical Investment (CHOICE Books, 1997).

As a keen environmentalist, Ross also played a part in the protection of some significant Australian wilderness areas, including Washpool National Park on the northern ranges of NSW and Yengo National Park north of Sydney. He is also credited with discovering three new species of Australian frog, two of which are on the endangered species list.

It’s this focus of business, environmental and social ethics that Ethinvest Managing Director and Financial Adviser, Trevor Thomas CFP^® credits as being the attraction for people wanting to join the business. “Our focus on ethical investing comes from the deeply held values of our people,” he says.

A business built on respect

Ask Trevor about Ethinvest’s vision and philosophy to ethical investing, and how this underpins the business’s approach to investing, and he sums it up in one word – “respect”.

“Within the business, we talk a lot about respect,” he says. “We want to understand our clients and respect their views. We want to help our clients by developing financial strategies and solutions that meet their needs and objectives in ways that are consistent with their ethics.

“Our job is to understand what drives and motivates our clients, and then build a portfolio of investments that reflect those values in such a way they are pleased with the outcome – both financially and ethically.”

Sitting at the heart of Ethinvest’s portfolio construction process is Australian Impact Investments – a subsidiary of Ethinvest that provides comprehensive analysis and research on impact investments available in the market. This specialist consulting firm provides services that enable clients, like Ethinvest, to develop investment strategies, analyse and select investment opportunities, and manage portfolios to optimise financial and impact objectives.

“We felt that clients increasingly wanted to invest their money proactively into investments that were mission aligned and would make a lasting difference to society and the environment without compromising their financial returns. And that’s where impact investing kicks in,” says Trevor.

Impact investing enables investors to use their capital to invest in solutions that make a genuine and lasting difference to society and the environment, without compromising their financial returns in order to achieve this. Today, impact investing can be seen in a range of sectors: from sustainable agriculture, renewable energy, conservation, and microfinance, to affordable and accessible basic services, like housing, healthcare, and education.

“Clients wanted to invest in a solution that was measurable and with a clear set of goals they could achieve with intent. You set out the intent in terms of the environmental and/or social impact, and then you track your performance against that intent. You are looking to make sure your money is achieving measurable outcomes beyond just financial returns.

“The research and analysis from Australian Impact Investments has enabled us to provide a quality control on the opportunities we are recommending and showing to our clients.”

Philanthropy and giving

Another core part of Ethinvest is its focus on philanthropy and giving. Supporting philanthropy was a founding goal of Ethinvest, and the business actively assists many not-for-profits, NGOs, charities and foundations to invest their funds for long-term benefit.

Trevor explains: “We work with clients across the spectrum. Some have philanthropic structures in place, others are generous with their giving outside of formal structures, while others need our assistance. Over time, we have build the capacity and experience to help people with their own private ancillary funds or philanthropic trusts.”

And about five years ago, Ethinvest also launched its own public ancillary fund – the Community Impact Foundation – which is available to clients who don’t have enough funds to start their own foundation, but who are keen to build a corpus of capital over time to give away. To date, the Community Impact Foundation has donated nearly $8 million to a wide range of charities.

When it comes to philanthropy, Ethinvest definitely ‘walks the talk’, by donating about one-third of its profits annually to the Ethinvest Foundation. Trevor hopes this Foundation will encourage other philanthropic organisations to look more seriously at the opportunities around impact investing.

Something different to everyone

Trevor believes there is no stereotypical client attracted to ethical investing, with this style of investing meaning something different to every client. He says there is a lot of overlap with environmental and social justice issues, with both having many different aspects that people either want to avoid or include as part of their portfolios.

However, Trevor admits to seeing a generational shift to ethical investing, particularly in some of the philanthropic groups the business deals with. For example, with family offices, he is seeing a definite trend in bringing through the next generation – the under 35s.

“There definitely are different sensibilities generationally, but we’ve got clients aged from 18 through to over 90 who are just as passionate about the environment and social justice issues. Because we specialise in the area of ethical investing, people come to us with a real desire to invest ethically. They often tell us about investment opportunities or problems with portfolios. This enables us to conduct deeper research, which also helps us improve our overall understanding of this area,” he says.

“Ethical investing is fundamentally about investing with your values. People are really interested in what their money is doing ethically and the ethics of the company they’re invested in, and this interest is only growing amongst investors of all ages.”

As this interest increases, Trevor believes client conversations around ethical investing will continue to evolve. However, he concedes that servicing a broad demographic of clients doesn’t come without its challenges.

“We do have clients in their 80s and 90s who push us just as hard as the Millennials,” says Trevor. “The idea that a person’s investments should be aimed at addressing climate change and creating a better world is something that cannot be ignored. And while I wouldn’t want to overdraw the difference between age groups, I do feel this type of investing resonates more with the under 35s,  although it’s spreading rapidly amongst other age groups.”

From a financial planning perspective, it’s the depth and quality of these client conversations across all age groups that Trevor believes makes ethical investing such a fantastic area to be in.

“It provides you with a whole range of conservations to have with your clients, while allowing you to build genuine rapport and strong relationships with them. And even though ethical investments have performed very strongly over the years, you get a really deep connection with clients, which adds to the stickiness of the relationship.

“They see how you have mobilised their capital in a way that aligns with their ethical values, and that’s something they’re very happy about.”

Get comfortable talking about it

Trevor acknowledges that some planners and advice businesses still struggle with the concept of ethical investing and discussing this style of investing with clients. He says one of the challenges over the years has been the lack of education and suitable products available to planners.

“In the past, it has been a challenge for planners to talk about ethical investing, as there weren’t many products available that they could recommend to an ethically-aligned client. Unfortunately, this scenario typically saw most planners shut down the conversation, rather than explore it more deeply with the client.

“However, times have changed, and it’s pleasing to see most licensees now putting genuinely screened ethical investment opportunities in front of their planners, enabling them to engage more broadly with their clients on ethical investments.”

And while Trevor admits there may still be some reticence by some planners towards ethical investing, due to fear they may be “shown up” and asked questions they can’t answer, he is encouraged that improved education by fund managers, as well as from specialist associations like the Responsible Investment Association Australasia (RIAA), is improving the confidence and knowledge of planners to talk more confidently about ethical investing.

“Our approach is to gauge the interest of clients about ethical investing and to encourage them to talk about it, rather than pulling out a sheet of paper and asking them to tick the boxes that interest them,” he says.

“Once a person starts talking about why they came to us, what they value, what charities they donate to, whether they volunteer or are involved in conservation or environmental activities, then this provides us with a good segue into getting the client to talk about what motivates them. From there, we can tailor our advice around their concerns and values.”

Building an ethical portfolio

With no one client the same when it comes to ethical investing, Trevor accepts that the portfolio construction process is not without its challenges. Ethinvest’s approach is not to force clients into a cookie-cutter advice offering or impose its own ethical views on the client. Instead, it’s about understanding the client’s values, their motivation for investing, and then putting together a solution that bests aligns to their ethical considerations and investment objectives.

“We have a very diverse range of clients,” says Trevor. “Some clients have strong societal views and so, they want their capital to be invested in socially positive things, and then we have clients who are strongly focused on climate change and the environment.

“So, our job is to understand our clients’ unique values, their motivation, and their investment objectives. From there, we can provide advice that is consistent with their wishes.”

The conversations with clients are nuanced. Ethinvest uses an internal framework as part of the fact find to identify the key areas of interest for its clients. This enables its planners to be more informed when speaking to clients about these areas, as well as enabling them to delve more deeply into issues clients care strongly about.

Just how deep the advice team drills down into holdings as part of the investment selection process, depends largely on how deep clients want to go.

“Some clients push us a long way. If we’re buying direct shares, we look closely at what the company is doing. We occasionally even put up resolutions at the AGM,” says Trevor. “This is all part of our shareholder activism. We are committed to promoting and upholding responsible ESG governance practices, and see our shareholder advocacy as a powerful way to effect positive changes.”

When it comes to ‘greenwashing’, Trevor says the clients at Ethinvest tend to have a good radar for this, which means they drive the advice team hard on ‘greenwashing’.

“Our subsidiary, Australian Impact Investments, is very much part of this process. When Australian Impact Investments is researching the different managed funds, it looks at every single holding in the portfolio. And because it scores every share listed on the ASX 300, it’s able to understand whether the fund manager is being true to label.”

However, Trevor concedes that ‘greenwashing’ is a significant issue in the industry and he fears the effects of ‘impact washing’ will also become an issue, as organisations increasingly map their products and services to the United Nations’ 17 Sustainable Development Goals, when in fact, they’re actually not making any real difference.

“As a licensee, our job is to provide our planners with an APL that has appropriately screened opportunities in every asset class. This has been made easier due to the research and analysis of Australian Impact Investments, as well as the greater range of products now available in every asset class. This has allowed our team to build portfolios right through from conservative to aggressive.”

He also points to the range of tools and resources that planners can use to help with their due diligence and research processes. As a member of the RIAA and the Ethical Advisers’ Co-op (EAC) – a membership of financial planners who predominantly provide ethical investment advice or who are transitioning to this style of advice – Trevor endorses the RIAA’s certified product tool, as well as the EAC’s ‘green leaf’ ratings of funds.

“By using these tools, planners can check funds that claim to have an ethical or sustainability focus are actually true to label,” says Trevor. “These tools enable planners to confidently build diversified portfolios, where their clients’ ethics are being reflected in what their money is doing.”

Combined efforts

Having racked up more years advising on ethical investing than he’d care to remember, Trevor figures he has learnt a thing or two over the years. One of those things is the type of client who is naturally drawn to ethical investments. According to Trevor, they tend to be warm and genuine individuals, who want to use their capital to do good and effect positive change.

“Over time, our clients become friends and often feel like family. We develop deep relationships with them, because investing ethically goes beyond just financial objectives. And that’s a great thing,” says Trevor.

He also adds that the ethical goodwill of people often extends beyond those of his clients and to the people working in the holdings the practice invests in.

“Because we’re quite active with our shareholdings, Ethinvest is constantly dealing with organisations that we view are engaged in activities that are inconsistent with their ethical and ESG claims,” says Trevor. “However, where we have engaged with those organisations, we have found people of goodwill within those businesses who feel the same way as we do and who are prepared to advocate for change internally.”

Respect differing views

For any financial planners or advice businesses thinking about getting more involved with ethical investments, Trevor emphasises that this is an area of advice and investing you can’t fake your way through. He admits there is a lot to learn, and a good starting point is the Ethical Advisers’ Co-op.

“This is a fantastic organisation, where planners come together to share ideas in a collegiate environment. The Co-op is made up of professionals who want to see the area of responsible investments and the benefits of ethical advice grow. There is a lot of resource sharing and working groups to get involved in, where good ideas and knowledge is shared amongst members.”

Ideally, Trevor would like to see more planners join the Ethical Advisers’ Co-op. He believes the knowledge and expertise gained from this group will naturally flow back to the licensee, enabling more clients to make financial decisions in line with their ethical values.

Both the Ethical Advisers’ Co-op and the RIAA have a good range of resources and education material available for planners. However, even if a practitioner still doesn’t feel confident to talk to clients about ethical investing, Trevor emphasises the importance of not letting your lack of understanding hold you back from having meaningful conversations with clients.

“Don’t be afraid to admit that you don’t know everything. After 25 years of advising, I’m still learning,” says Trevor. “Let your clients know you’re also on a learning journey, and while you might not have all the answers for them now, you will have the answers after conducting the appropriate research.”

But perhaps his best advice – which has been gained over 25 years of advising – is to be respectful of the views of clients, even if they differ from yours.

“It might be that you don’t share the views of your client, and that’s okay,” Trevor says. “You don’t have to agree with your client but you must have a respectful conversation with them and respect their right to have a particular view on issues that you might not agree with.

“As planners, our job isn’t to try and convince people to change their views; it’s to understand their views and respect them. By all means, share your views with clients, even if they’re different. Sharing your views doesn’t mean you are imposing a particular set of ethics on the client, but it can lead to healthy conversations and deeper client relationships. Like I said, ethical investing is a fantastic area to be in.”