PodMD: The financial journey of the doctor is unique and complex. DPM Financial Services is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals. DPM Financial Services is all about you getting the right advice that suits your personal and professional needs, making sure you have the confidence in your financial future.
Today I’d like to welcome to the PodMD studio Will Ezzy from DPM. Will joined DPM in 2016, he has more than 13 years experience in financial services industry. He specialises in developing long term wealth management plans, tailoring ongoing strategies to ensure his clients are in the best financial position to achieve their goals.
We do hope you enjoy the podcast. Please remember that the information discussed is of a general nature. It is not intended to serve as advice. The views and opinions expressed in this podcast are those of DPM and not PodMD. DPM Financial Services recommends you obtain advice concerning specific matters before making a decision. So Will thank you very much for talking with us today on PodMD.
Will: Thanks very much for having me.
PodMD: So, today’s topic is going to be a discussion on ethical investing, how to ensure your investing strategies that align to your values. So, can you begin by explaining exactly what is meant by the term ethical investing?
Will: Ethical investing is all about investing in accordance with your morals, ethics and values. Alongside a focus on returns, ethical investing focuses on investing in companies, investments, and superannuation funds that align to your beliefs. For example, those that demonstrate a positive environmental and social impact. Over the past few years, there’s definitely been a growing interest in more socially focused investments amongst our clients, who are all medical professionals. Whilst it’s not for everyone, nor is that a prerequisite to successful investing, we are having an increasing number of conversations with our clients, aiming to seek out companies that demonstrate both good financial performance and an alignment with a sustainable and ethical goals.
PodMD: That makes sense. So then one of the main areas of focus that we’re really talking about when we’re talking about ethical investing.
Will: Ethically investing investors often use a framework that filter out companies and investments that don’t meet certain criteria and include companies that demonstrate good ethical and sustainable practices. This is often referred to as positive and negative screening, and funds and investments may seek to offer exposure to positive screens, negative screens, or a combination of both. So, in summary, negative screens involve avoiding certain investments in companies or industries which have an unnecessary negative impact on society and environment. For example, for medical professionals to whom we provide financial advice, ceasing investment in tobacco manufacturers and producers is particularly prevalent. Alternatively, positive screening involves proactively searching and investing in companies and funds to contribute positively to society and the environment. For example, investing more in companies with a focus on renewable energy production, or those that have strong environmental, sustainability and governance plans relative to their peers. Corporate engagement is a third form of increasing ethical investment, where we see large institutional managers and superfunds that use their size and voting power to advocate for positive change the corporate practices and environment. To illustrate think of a company using their voting power to vote against executive renumeration packages, bonuses of the company they invest in, or on account of a company taking limited action on climate change.
PodMD: So, when I looked into it, there seemed to be a lot of financial jargon and acronyms. When I was really trying to look in ethical investments. So, you know, I saw socially responsible investing, ESG considerations. Can you kind of tell me a bit more about this segment standard better?
Will: Absolutely. Look, ethical investing is a minefield of jargon, and something that the financial services industry has created. ESG investing environmental, social and governance and social responsibility as ROI investing and impact investing are all industry terms often used interchangeably by investors and professionals alike, with the assumption that they all match in meaning and approach. However, in reality, distinct differences exist. That will affect how our client portfolio should be structured, with investments that are suitable for meeting social Impact goals. Ethical investment frameworks often centered around environmental, social and governance ESG factors. These factors considered in ethical investment decisions include environmental factors such as climate change, carbon emissions and renewable energy. Social factors, which might include employee wellbeing, product safety, good stakeholder management, and community impact. And, governance factors, which may include factors such as board diversity, for example, independence and gender diversity, executive pay renumeration, and exposure to corruption. Investors may seek to know how they manage their environmental, social and governance risks. ESG funds or investors consider in their decision making how environmental, social and governance risks and opportunities can cause material impacts on a company’s performance and valuation. They can invest sustainably whilst maintaining the same level of returns as they would with the standard investment approach. Socially responsible investing goes one step further then ESG and invest actively seeking to eliminate or focus on investments according to this specific ethical guidelines. The underlying motive could be religion, personal values, or political beliefs. Unlike ESG analysis, which shapes company valuations, socially responsible investing factors, uses ESG factors to apply negative and positive screens on the investment universe with less focus on the financial elements and valuations. Another commonly used phrase is impact investing, in which positive outcomes are of the most utmost importance. All the investments need to have a positive impact in some way. So, the objective of impact investing is to help a business, or an organisation accomplish specific goals that are beneficial to society, or the environment alongside a financial return. For example, investing in a company focused on research and development of clean energy, regardless of whether financial success is guaranteed.
PodMD: So aside from those obvious benefits, can there be other advantages to investing ethically?
Will: We should acknowledge first and foremost that a lot of research is currently being done into whether ethical investments provide a return premium. I think that it’s too premature to deny any premium exists. However, there are other advantages from investing your portfolio in tune with ethical preferences. For example, you as the investor might feel happy when ethical holding company performs well, knowing that your investment is doing more good, and supporting causes you’re passionate about. You often benefit emotionally and financially when the company shares your own values. As more people invest in ethical funds investments can grow sustainably into the future and since ethical investing is gaining importance, it will give other businesses the chance to improve ethical practices to attract funding to keep up with competition.
PodMD: So, there’s our advantages. Are there any disadvantages that we might face or that we need to factor in when we’re investing ethically or considering to do at least?
Will: Like any investment decisions, we encourage doctors to consider their own ethical preferences and ensure they align with their own personal circumstances, and overall investment objectives. And it’s really something we can’t stress highly enough. Ethical investment decisions need to be considered environment factors, including investors risk preferences, the diversification of their investment, asset allocation and costs. For example, ethical investing is not a passive investment strategy involves lots of research and to ensure that it aligns with investors values and beliefs. This research can be outsourced to an investment professional; however, the ownership remains on the investor to ensure the ethical alignment to their own beliefs is maintained. In some cases, the fees for ethical investing could be higher due to the research involved in identifying the right investment. Limiting exposure to some investments might decrease the diversification of the portfolio. Diversification is essentially the spread of assets across different sectors, countries and markets. Diversification is also a key investment characteristic, where essentially, we don’t want investors to have all their eggs in one basket.
PodMD: So, do you think this will become more of a focus or a key selling point for more superfunds moving forward?
Will: We’re noticing that this is something that’s getting discussed more and more in our meetings with doctors, and it’s not a fad. It’s here to say and more and more people are getting educated on the issues and realising that ethical investing, realizing the impact ethical investment is making.
PodMD: So, for those who would like to evaluate their own investment portfolio and start investing ethically, how would they go about starting this process?
Will: I think there’s a few key steps to follow. First and foremost, make sure you consider your own circumstances and don’t follow the herd. Choosing where to invest, be at building a share portfolio or where your superannuation should be housed is a really important decision. I believe that when considering whether to invest ethically, it’s important to take a moment and also consider other factors, like for example, your own personal circumstances, your attitude towards risk, your investment timeline, and your stage of life. The second key step I would suggest is to understand what ethical investing means to you. Take a moment to consider what ethical investing means. And as we’ve discussed earlier, considering your own investment preferences, and whether you’re seeking to exclude particular investment or sectors to include particular investments or sectors, or focus on companies that are trying to do more good. And the third thing I’d really highlight is to do your homework before you decide to invest in a company, a superannuation fund or an investment, do some research to check the accuracy of their claims. As we talked about earlier, ethical investment is a wide-ranging topic, and there’s plenty of options available in the financial universe. Don’t get stuck on the front page and be sucked in by the glossy marketing, or make sure that the investment provider is very clear about what ethical investment approach is, and who you’re supporting with your money. And finally, seek advice. If you’re trying to invest ethically and it’s giving you a headache, seek advice from a professional financial advisor, also referred to as a financial planner, like me, are always to help define what ethical investing means to you to understand the investment options available and if it’s appropriate, work with you to develop an investment approach that speaks to you and is aligned to your financial plan.
PodMD: Well, thank you very much for your time here today. To sum up, could you please identify three key take home messages that you want the doctors to take out of this podcast on the importance of ethical investment?
Will: Absolutely three messages. First and foremost, take a moment to consider what’s important to you regarding your investments and secondly, to consider the available investment options and whether they satisfy your goals. And third, seek professional advice and help as it’s required.
PodMD: Well thank you very much for your time and everything you’ve told us about today.
Will: Thanks very much.