For 16 years, Ethical Investment Advisers has specialised in ethical investing. Jayson Forrest talks to Louise Edkins CFP® about the practice’s vision and approach to ethical investing.

Name: Louise Edkins CFP^®

Position: Joint Director

Practice: Ethical Investment Advisers

Established: 2004

Licensee: Ethical Investment Advisers

Financial planners: 11

Staff: 18

With a 26-year pedigree specialising in ethical investing, Louise Edkins CFP^® knows a thing or two about this burgeoning sector of the industry. Along with her business partner, Terry Pinnell CFP^®, they established Ethical Investment Advisers in 2004. As an advisory business, it was one of the early adopters of ethical and impact investing, which Louise says was born out of the excesses of the 1980s.

“Previously, both Terry and I had worked in large financial institutions in risk, stockbroking and investment banking. During the 1980s, we saw a lot of the Gordon Gekko ‘greed is good’ mentality, as well as the effects of the 1987 sharemarket crash. This motivated us to align our personal and professional values with the advice we were providing to clients,” says Louise.

Originally based in Brisbane, the business has grown to include nine offices spread across Brisbane, Hobart, Perth, as well as Byron Bay, Toukley and Erina in NSW, and Dunsbourgh in Western Australia.

As a business specialising in ethical investing, Louise says it’s important that Ethical Investment Advisers “walks the talk” when it comes to discussing environmental, social and governance (ESG) issues with clients. It does this in a couple of ways, both in the way it runs its offices and through its philanthropic activities.

“We’re very careful with our carbon footprint,” says Louise. “We offset carbon emissions from cars, airfares and office heating/cooling with Greenfleet – an Australian not-for-profit environmental organisation whose mission is to protect the climate by restoring forests.”

Ethical Investment Advisers also uses solar hot water, solar panels, low energy lights and insulation to reduce its energy consumption, while also buying green power and planting trees on the western side of its offices to reduce heat. It has also lowered its environmental impact by recycling waste paper, plastics and metals in the office, as well as composting food waste.

“We also use water tanks and low water use toilets and showers to reduce our water usage. We recycle the grey water and use mulching to reduce water loss in our gardens.”

Ethical Investment Advisers is also committed to using some of its profits philanthropically. This includes supporting women in the Asia Pacific region who are trying to start up small businesses by providing microfinance loans through the not-for-profit organisation, Good Return.

“We have helped women from Nepal, the Philippines, East Timor and Tonga. As a business, we thought that by making it a loan, the money can be recycled over and over again, which helps far more people over time,” says Louise. “It’s great that we can share our good fortune with those who are less fortunate living in the Asia Pacific region.”

The business also supports Market Forces and its community work to prevent investment in environmentally harmful projects, while also supporting the Australasian Centre for Corporate Responsibility (ACCR) – a research and shareholder advocacy organisation.

Louise says these environmental and social initiatives align closely with the business’ own values, which centres on helping investors incorporate their own ethical values with their investment objectives.

However, one aspect of the business that Louise is particularly proud of is its active engagement with fund managers. Ethical Investment Advisers regularly provides assistance to fund managers on how they can create better products, while other managers approach the business for feedback on what screening and types of products ethical investors want.

“We also provide feedback on how fund managers can improve their products. It’s especially rewarding when fund managers change their screening based on our advice,” Louise says. “I feel this type of engagement with fund managers at the coalface is having a beneficial impact on the ethical investing sector.”

Ethical investing

With both Louise and Terry being charter members of the Responsible Investment Association Australasia (RIAA) and founding members of the Ethical Advisers Co-operative, Ethical Investment Advisers has impressive ESG credentials, which have been built into its approach and philosophy to ethical investing.

At the heart of this philosophy is Louise’s belief that ESG is what all investment management should be doing better, by identifying, assessing and managing the governance, social and environmental risks of the investments they make.

She believes that a responsible approach to investing is one that systematically considers ESG and/or ethical factors across the entire portfolio, which is increasingly becoming the expected minimum standard of good investment practice in Australia.

“The responsible investment market is continuing its upward growth, with associated assets under management growing 13 per cent in 2018 to $980 billion, according to the RIAA’s Responsible Investment Benchmark Report 2019,” says Louise. “This represents 44 per cent of total professionally managed assets under management.”

However, over her 26 years in ethical investing, Louise concedes clients do have different reasons for investing ethically, but she says what binds them together is a belief that ethical investing allows them to take tangible action on social and sustainable issues.

“Money has power to influence and many people feel disempowered by the politics of the day, but through ethical investing, they can take personal action that is more than just consumer choices.

“So, while clients may have different personal values, they share a common purpose in wanting to be part of a global solution to the issues surrounding climate change and human rights, by investing responsibly, ethically and sustainably,” she says.

“Clients want to assess the environmental and social risk of their investments. They’re seeking to screen out certain industries and sectors, while screening in positive impact and planet solution investments. They want to be part of the solution, while avoiding those sectors and companies that are part of the problem.”

Social impact investing

The type of client attracted to ethical investing crosses all demographic and generational groups, says Louise. The clients at Ethical Investment Advisers are diverse, coming from a range of backgrounds, but they all have one thing in common; they all want to ensure their money is helping, rather than harming, the environment and society, while making a competitive return.

“Whether you’re talking Baby Boomers, Gen X or the Millennials, all these generations share very similar ethical concerns about the issues we’re facing. It’s the one thing that unties these generations.

“Investors, regardless of their age or generational cohort, are getting their returns through their ethical investments, so they’re not chasing returns from other types of investments or sectors. In fact, they continue to develop their ethical investment values.

“As their wealth grows, some clients actually start to consider social impact investments and philanthropic trusts. For them, the return is actually on the social outcome.”

Louise points to wholesale social impact bonds that assist with outcomes on a range of social issues, like foster care.

“So, some of my clients who have built up their wealth and are in a financially comfortable position, choose to have more philanthropic investments that may perform at a lower level, as part of their investment portfolio.”

In fact, Louise is seeing an increasing move by investors to social impact investing, where positive outcomes are important to clients, meaning the investments need to have a positive impact in some way.

“The objective of impact investing is to help an investor achieve specific goals that are beneficial to society or the environment,” says Louise. “Investing in a non-profit dedicated to the research and development of clean energy, regardless of whether success is guaranteed, is an example of impact investing.

“Many clients are concerned about climate change, with Australia’s recent bushfires making this more tangible for people. Add COVID-19 to this, and these have all been catalysts for people to re-evaluate what’s important in life, with a whole range of social issues coming to the fore now, like the Black Lives Matter movement. People are making this re-evaluation as consumers and as investors.

A sustainable return

Louise is adamant that no investor has to sacrifice investment returns in order to invest ethically, which means clients can ensure their money is helping the environment and society, while making a competitive return.

“Throughout COVID19, ethical funds have performed better because they hold no carbon intensive industries, like aviation. And ethical funds are not invested in oil and gas, which as a sector, has been dropping for decades. Ethical funds also tend not to be in high-end discretionary sectors, like travel, which is currently suffering as a result of the pandemic.

“Instead, ethical funds are invested in industries and sectors that are part of the global solution, including ‘sustaintech’, biotech, aged care, healthcare, and disruption technologies.”

Louise adds that independent research confirms that performance is not impacted by investing ethically and in most cases, it’s actually better. “If you look at the RIAA Responsible Investment Benchmark Report, every single year over the past 18 years, the performance of ethical investments has been better or similar to other investments.”

However, regardless of investment performance or ethical values, when it comes to forming an ethical view towards investing, this is something the advisory practice encourages its clients to form on their own.

Louise explains: “We do not form the ethical view, the client does. Clients have their personal values and we align those with the investments that reflect their ethical concerns. Our clients have similar views with a focus on investing positively in areas such as renewable energy, energy efficiency, health, as well as avoiding certain sectors, like fossil fuels, gaming, armaments, and companies with human rights violations.”

In order to adhere to its clients’ ethical views, the team at Ethical Investment Advisers is careful to build an investment portfolio that aligns to their values, goals and objectives.

“We take this process one-step further by questioning what they want to be invested in from an ethical point of view, and what they want to be avoiding. You need to understand what their main investment concerns are, including what issues they are neutral on, and what issues they want to avoid or support. We then reflect this in the investments we choose.

“Today, there are a lot of choices available in managed funds across all risk profiles and investment styles that can provide investors with good performance and screening.”

Advice transparency

As part of its service offering, Ethical Investment Advisers offers four SMA portfolios – growth, fixed income, mid-cap, and large-cap – that have been designed to provide investors with access to well-diversified investments that are also making a positive contribution to a sustainable future.

The types of targeted investments in these SMAs include: clean energy, education, innovation, aged care, energy efficiency, healthcare, clean transport, recycling, and responsible banking. Excluded investments include: heavy polluters, weapons, tobacco, fossil fuels, human abuse, logging, and gambling.

“We use managed accounts because it’s an easier and more efficient way to invest. Ethical investors want transparency and control of their investments, and managed accounts allow this.

“We created two Australian share SMAs – Ethical Investment Mid-Cap and Ethical Investment Large-Cap – that excluded fossil fuels because there wasn’t any Australian share funds that had fossil fuel exclusions when we set these SMAs up. Our clients also didn’t want to be invested in the major banks because of their fossil fuel lending. Clients had a strong position on fossil fuel exclusion, so that’s why we set up these SMAs.”

The Ethical Investment Growth SMA and Ethical Investment Fixed Income SMA were created as Lonsec rated fund-of-funds that encompassed “the best ideas in ethical investment”. According to Louise, one of the reasons the business created these two SMAs was to provide a whole solution across all risk profiles and asset classes.

Key learnings

With 26 years racked-up specialising in ethical investing, Louise has witnessed the evolution of this burgeoning sector.

“Over almost three decades of advising, I have seen stronger and stronger alignment of ethical values by investors,” Louise says. “Initially, it was gaming, tobacco, armaments and human rights abuse that were screened out. Now, that exclusion extends to fossil fuels, which has become a stronger exclusion issue, while investors are demanding greater exposure to renewables, energy efficiency and sustainable practises, including agriculture and food production.”

When Louise first started advising clients, there wasn’t a lot of ESG or SRI product available, which required her to do a lot of direct equities. But today, there is a greater number of international fund managers in Australia offering ethical options.

“As a result, there’s been a phenomenal growth of investment choice, in a range of different areas, particularly in green bonds, passive and active ETFs, and managed funds.”

Louise is pleased to see the growing range of managed funds that offer investors choices around  investments that are focused on different areas, like sustainable and clean technology, where the focus is on environmental issues.

“We’re seeing a whole range of different investment choices because a lot of the true to label impact and environmental investments now available in this country are coming from international managers, which is providing Australian investors with great ethical investment opportunities.”

Taking the ethical path

So, what advice does this industry veteran have for any advisory business looking to go down the ethical investing path?

Louise offers five tips.

1. Do your research

“It’s important you listen to your clients and properly understand their investment goals and objectives,” she says. “You don’t want to upset them by choosing an ethical product or investment strategy that doesn’t align with their values.”

When it comes to investments, Louise advises planners to do their research and due diligence, because “there is a lot of ‘greenwashing’ in the market”. Greenwashing occurs when companies provide a false impression or misleading information about how its products are more environmentally sound and friendly than they actually are.

2. Ethical ratings

Louise encourages planners to use ethical product ratings available in the marketplace. For example, the leaf ratings system provided by the Ethical Advisers Co-Operative is a valuable and practical tool that provides planners with a snapshot of which products have strong ethical screens and which products have poor ones. Planners can then look at the financial ratings of these products, in addition to this ethical screen rating, to form a better picture of the universe of products available.

3. Offer a whole solution

For clients who want to invest ethically, Louise says it’s important you provide these clients with a whole solution, and not a part solution, that align with their investment goals and objectives.

“Clients want a whole solution. They don’t want to be invested just 10 per cent ethical. So, provide a whole solution, and not just standard products on your APL that may have an ethical fund added into it.”

She cautions planners to not be content to use an ethical product on an APL, but rather to dig deeper and find the better products to add to your APL.

“Clients looking for ethical investments tend to do their research and if they see that the underlying stocks are at odds with what they are asking for, they won’t be happy!”

4. Join an ethical advice co-operative

Louise also recommends planners join the Ethical Advisers Co-operative (EAC). This co-operative is a membership of financial planners who predominately provide ethical investment advice or are transitioning to this style of advice. The EAC rates funds that have an ethical or sustainability focus. These funds are considered to be making an effort to invest in more environmentally sustainable, ethical and socially responsible investments.

“Terry and I are also founding members of the EAC and our staff play an active role on the board and in working groups for the EAC. The EAC is member operated and was created to support ethical advisers across Australia and ultimately, their clients,” says Louise.

5. Consider a specialist association

Louise also encourages planners to consider joining the Responsible Investment Association Australasia (RIAA), which advocates for responsible and sustainable investing in Australia and New Zealand.

The RIAA provides the accredited Responsible Investment Certification Program for practitioners, which certifies that planners have reached the professional standard required to advise on responsible investing products and services.

In addition to both Louise and Terry being charter members of the RIAA, Louise also held a board position. Currently, one of the Ethical Investment Advisers team members, Karen McLeod CFP^®, is a board member and also sits on its Certification Committee and the Governance Committee.

A collaborative community

Louise urges practitioners to consider becoming part of a collaborative community that is raising the profile and importance of ethical investing in Australia. She believes as awareness continues to grow around social, environmental and ethical issues, the need for planners to provide advice on ethical investing will only continue to grow.

“A bonus of taking this ethical investing approach is the strong relationships you can forge with your clients, where client conversations around the social and environmental impacts of investments become much deeper,” she says.

“Today, planners specialising in this sector are overrun with client enquiries, and there are no shortage of investors seeking advice on ethical investing. This is a truly exciting sector to be a part of.”