An investing strategy is something you determine as an investor in training to decide how you want to grow your money. It's like your skincare routine. There's some steps we all do, like washing our face, but some things that maybe other people do but you may not — like using retinol (but it’s okay, you’ll come around on the retinol). We'll be spending the next few chapters going over investing strategies. Pick up the strategies that interest you and park the ones that don't. You can always come back to these chapters to re‐evaluate what your new strategy might look like.

Millennials and Gen Z have taken a different approach to investing than the generations before. We are more aware of the dangers of overconsumption, toxic ingredients and environmentally irresponsible practices. While we used to be blissfully unaware of where our purchases came from and how they were made, now companies are being called out for their unethical treatment of labour or environmentally harmful practices. In recent years there's been a complete 180; now we're questioning every form of consumption and demanding transparency.

We want to know what the ingredients on the back of our food packets mean. We want to know where and how our clothes are made. We want to know if our eggs were laid by hens with free access to the outdoors.

Our investments are no different. But how did the ethical investing movement begin?

Cigarettes and physicians

In 2010, an Australian oncologist (cancer doctor), Dr Bronwyn King, was meeting with a representative from her retirement fund. (In Australia this is called superannuation/super, in New Zealand it's KiwiSaver, in the US 401[k].)

The fund manager said Dr King's money was in the option of a balanced fund. Dr King picked up on the word ‘option’ and asked the manager to explain further. In this meeting she realised there were different funds available within her super, with different companies in them. Dr King also found out that out of the top five companies her retirement money was investing in, four of them were tobacco companies.

Let that last sentence just simmer for a moment. An oncologist, who spends every day of her job treating people for cancer, was unwittingly investing in one of the most common carcinogens in the world: tobacco. She owned a part in four tobacco companies! You can only imagine the shock and disgust she felt.

Most people would have just changed their fund and moved to another super, but Bronwyn went further. She wasn't okay with the lack of transparency around investments. She realised it was a worldwide issue and created an organisation, Tobacco Free Portfolios, that creates policies in Australia and in over 20 countries worldwide to reduce tobacco investing options, and to encourage more transparency around ethical investing.

Investing and having a moral compass can sometimes seem like they don't mix, but things have changed since 2010. In fact, investments in sustainable funds (which we'll get into shortly) more than doubled from 2019 to 2020. And in the US alone, over $17 trillion is under management using sustainable investing strategies. So, what are ethical investing, impact investing and socially responsible investing? Aren't they all the same thing? And how does one become an ethical investor?

Ethical investing

Ethical investing means investing in companies and funds based on your own values and morals. What may be ethical to you may not be ethical to someone else, and that's okay.

Ethical investing takes into account your religious, cultural, social and moral beliefs. It's very much like conscious consumer culture. In the same way that you'd rather buy a tote bag from a brand that you know pays fair wages, investors in training would rather invest in an ethical company over one that doesn't align with their values.

You basically get to decide if a company or fund meets your ethical standards, and you choose if you want to engage with them or not.

I need to stress that ethical investing is going to look different for different people. Someone may look at Tesla and invest in the company because they love the electric car movement and reducing dependence on oil, whereas another person may denounce Tesla's CEO for his beliefs or actions. Both investors are correct, because with ethical investing it is purely a personal decision.

It's putting your money where your mouth is, and only sharing your hard‐earned money with the things that matter to you. Again, it's about doing whatever helps you sleep easier at night.

Socially responsible investing (SRI)

Socially responsible investing or SRI is very similar to ethical investing, but it goes one step further and focuses on investing in sustainable business practices. You get to choose or remove investments if you believe they do or don't adhere to sustainability guidelines. For example, you may choose to not invest in Nestlé as you don't believe in one company having a monopoly on an industry — that's an ethical choice. Someone else may not invest in Nestlé due to their past use of palm oil and its destruction of rainforests (which they stopped in 2021) — that is a sustainable choice.

An example of SRI investing is Environmental, Social and Governance (ESG) investing. This means companies you invest in focus on:

• environmental issues, such as climate change, water usage and pollution
• social issues surrounding health, safety and the treatment of employees
• governance issues surrounding management practices, business ethics or appropriate pay.

ESG investing is a common term used in the world of investing — if you ever see a fund with ‘ESG’ in its name you'll know they're trying to market themselves as an ethical option.

Its premise is based on investing in companies that have a positive impact on the world.

In recent times, more focus has been on companies that are environmentally conscious or help to fight climate change, either by reducing emissions or creating clean energy.

Impact investing

Impact investing is all about investing in companies or organisations that benefit society. For example, this is what the Bill & Melinda Gates Foundation does: they have invested over $60 billion in grants to companies like the Africa Health Fund, which improves the quality of healthcare in Africa, or Pfizer to create affordable contraception for the developing world.

How do you get into impact investing if you don't have a spare $60 billion?

You can be intentional with the change that you want to see and invest in companies that are executing this. Investors in training can be impact investors in their own right.

For example, you may be interested in supporting female‐led companies, so look into ETFs such as SPDR® SSGA Gender Diversity Index ETF, which goes by the ticker ‘SHE’. It's an ETF that provides exposure to (i.e. lets you in on) US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector.

One thing to remember, however, is that when you invest in a company, your money doesn't go to them directly. But by investing in their shares, you can increase their stock price, which in turn shows them off as a stronger company and enables them to keep doing good work.

Ethical investments: woo‐woo or cha‐ching?

Ethical investing is a way to create change in the world and hopefully make money doing so. You don't necessarily have to sacrifice good returns for ethical investments.

Back in the day, ethical investing was seen as a bit ‘woo‐woo’. No‐one really saw how you could care about the world's issues and try to make money at the same time.

However, times have changed. You no longer need to invest in tobacco, coal or casinos to make good returns. Morningstar, a well‐respected global research agency, found that sustainable funds matched or beat returns across shares and bonds, both in the UK and overseas, over a 10‐year period. The average annual return for a sustainable fund invested in large global companies has been 6.9 per cent a year, while traditional funds only brought in 6.3 per cent. (If you're thinking ‘Hey! That's below the 7 per cent average return Sim has been mentioning', remember the average return of 7 to 10 per cent we've been working with is calculated over the past 40‐plus years … it's always important to take into account what period of time you're dealing with.)

This better performance makes sense, though, doesn't it? Companies with better ESG practices will treat their customers and staff well. They'll have a better working environment. They'll have more loyal clients and care about the issues of today. They'll also have more diversity and, therefore, a greater breadth of decision‐makers and change makers.

These are all characteristics of a company that is going to have greater productivity and greater financial success.

Of course ethical investing is good for business.

So how do you do it?

Wanting to invest in ethical companies and funds is one thing, but how do you actually go about doing this? There are a few strategies investors in training have under their belt. (The term ‘strategy’ may make it sound complex and maybe even a bit overwhelming, but don't worry — if this book has taught you anything, it's that the jargon in the investing world isn't nearly as scary as it seems.)

Is it actually ethical or is it greenwashing?

Unfortunately, you and I aren't the only two people who know that ethical investing has become more popular. Being tagged as ethical brings in more investors, and so funds are now more inclined to suggest their funds or companies are ethical or green as a marketing gimmick.

To make matters worse, there are no regulations to define what ‘sustainable investments’ involve — and the term ‘ESG’ can be slapped onto any fund. After all, ethical investing is so subjective, right?

An example of this is the BlackRock carbon ETF called BlackRock U.S. Carbon Transition Readiness ETF. (BlackRock is a famous investing management company.) This ETF is meant to follow the Russell 1000 and claims to have less than 50 per cent carbon intensity (which in simple terms is the amount of carbon dioxide it takes to make electricity). Sounds great for someone who wants to invest in clean energy, right?

However, after looking at their holdings, you'll realise the ETF invests in Chevron, which was partly responsible for spilling 77 million litres (17 million gallons) of petroleum and 18 billion kilos (18 million tonnes) of toxic waste in Ecuador. Not quite the environmentally friendly fund you may have had in mind.

It's important to not only be an ethical investor, but a vigilant one too.

Investors in training are aware that they cannot trust something to be ethical without researching it themselves and making their own judgements. Often, just by looking at a company's holdings, you'll see each company listed by its ‘weight’ in the fund, for example, FUND ABC is made up of:

• Apple: 10 per cent
• Google: 5 per cent
• Tesla: 4 per cent, etc.

If you're researching a fund, make sure you check out that fund's holdings to ensure they meet your criteria.

Investing and activism

As an investor you can vote for change with your money, pouring more into the issues and brands that you care about and actively choosing not to support companies that go against your beliefs.

It has never been easier for investors to get into the stock market, and it has also never been easier for groups of people to collectively stand together on issues they feel are important. Put them together and suddenly you've got a platform that corporations will listen to.

We can often feel helpless against large corporations, and they only seem to be getting bigger and more powerful. I'll let you in on a little secret, though. Companies only care about two groups of people: their customers and their shareholders. If you're not a customer boycotting the brand, you can be a potential shareholder who actively chooses to avoid or even sell their shares in protest. Companies do whatever they can to keep their shareholders happy; it is in their best interest, after all.

When large numbers of consumers start telling a company that they refuse to engage with them, or hold their shares, they start to listen. After all, it hurts their bottom line when there is less demand and their stock price drops — in the world of business, that is all that matters. Being an activist with your money has the benefit of hitting companies where it hurts the most. Unfortunately, companies are going to take more notice if you pull your shares out than if you stand in front of their office protesting.

I am all for marching and protesting for our rights and fighting for change, but I truly believe investing can be an important part of the overall conversation. Whether it's right or not, we live in a capitalist world, and money talks.

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Investors in training know that ethical investing is an important part of their overall journey. It doesn't mean you need to run and invest in as many green‐energy funds as you can, but rather that you get to choose investments that align with your morals and views.

No‐one gets to have a say on what is right or wrong for your portfolio, except yourself. It's liberating to be able to choose what is important to you and to put your money into the changes you want to see in the world. Making money and making change in the world don't have to be mutually exclusive.