Today’s people who trade on the stock market want more than just financial returns. They are increasingly opting for investments that will also have a positive societal impact.
The coronavirus pandemic has shown us that even established tech companies can suffer from short-term downturns. Apple, a tech giant, was left in shock when Chinese manufacturing centers were temporarily closed last year.
Over the longer term, however, tech stocks remain a top choice for many investors. Historically, they have dominated the global stock markets and continue to grow at a remarkable rate.
Even during the pandemic’s downward spiral, tech stocks like Zoom and Microsoft gained in value as an influx of people started working from home. The question for many investors now is: how do you find profitable investments without supporting unethical activity?
Growth in technology stocks
According to Morningstar investment advisers, technology stocks represent 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 over US $ 4 trillion.
Tech stocks are also central in Australia. We have seen the rapid rise of Australian-owned “buy now, pay later” businesses such as Afterpay and Zip.
At the same time, we have seen an increase in the number of Australians switching to ethical superannuation funds and ethically managed investment programs. The latter allows investors to bring in money (managed by professional fund managers) which is pooled for investment in order to produce collective gain.
Indirect investments through these programs are estimated to have 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 spending your money on something that makes the world a better place. This can range from companies defending animal rights to those aiming to limit the societal prevalence of gambling, alcohol or tobacco.
Although there is no strict definition of ethical investing in Australia, many managed funds and super funds seek accreditation from the Responsible Investment Association Australasia. The “ethical” aspect can be grouped into three main categories:
- Environment – such as the development of clean technologies or participation in carbon neutral manufacturing
- Social – such as supporting innovative technologies, reducing social prejudices such as poverty or gambling, promoting gender equality, protecting human and consumer rights or supporting animal welfare
- Corporate governance – such as the fight against corruption, the promotion of healthy employee relations or institutional transparency.
As investors, we need to be very careful with the fine print of the companies in which we invest. For example, the accreditation guidelines require that an investment fund managed excluding companies with “significant” fossil fuel connections can still include one that pays off. until a certain amount of income from fossil fuels.
So, although the AMP Capital investment manager is accredited, it can still include companies making up to 10% of their income through the distribution and services of fossil fuels.
5 tips for an ethical technology investment
Many tech stocks are well positioned for ethical investing, and you can choose to invest on your own or indirectly through a managed investment fund. Either way, you need to do some basic homework first.
1) Monitor the fund or business to ensure standards are maintained
In order for a company to be listed on the Australian Securities Exchange (ASX), it must be publicly traded. It is therefore required to submit an annual audit report (audited by third party auditors) to the Australian Securities and Investments Commission (ASIC), in accordance with the Corporations Act 2001.
You can also contact ASIC for more information about a company listed on ASX. The equivalent body for US companies is the US Securities and Exchange Commission.
If a business backtracks on the very ethical standards that motivated your initial investment, you should consider withdrawing your investment.
2) Stay informed of reported ethical breaches
Reputable reporting is useful on this front. Amazon, Facebook, and Alphabet are recurring names in reports of unethical practices in the tech industry.
While there is a lot of information about a tech company that you can access from its own website and distribution channels, it is usually embellished and / or selected by the company itself. Make sure your information comes from a variety of sources.
3) Consider how employees rate the company and why
Keep in mind that a tech company can be environmentally friendly, but run into other issues, such as gender pay equity, for example. It is important to listen to employee claims about the inner workings of a business, as such information might otherwise not be available.
There are a number of independent sites that report on Corporate Culture Reviews, including Glassdoor.
4) Evaluate the environmental, social and corporate governance (ESG) score
One of the advantages of investing in large medium sized technology companies is the ability to analyze their ESG score, issued by agencies such as Refinitiv. This score reflects the extent to which the company adheres to ethical practices in the environmental, social and corporate fields. related to governance Questions.
5) Watch out for buzzwords
If you’re looking to invest in clean technology, watch out for buzzwords used in corporate reports. These are terms that, at face value, may appear to align with your own ethical investing values, without actually delivering them.
For example, “net zero carbon” and “carbon neutral” are not the same thing. This is an important distinction to consider if you want to make environmentally friendly investments.
This article by Angel Zhong, Senior Lecturer in Finance, RMIT University and Banita Bissoondoyal-Bheenick, Associate Professor and Associate Dean of Finance, RMIT University is republished from The Conversation under a Creative Commons license. Read the original article.
Published March 29, 2021 – 10:13 UTC