Get woke, go broke: Is it possible to make money from investing ethically?

This article originally featured on Stuff and was written by Lily Richards. 

Lily Richards is the creative director at Pathfinder and a freelance writer.

OPINION: “Woken but unsustainable”.

“The whole thing is a con”.

“Note to self, do not use your KiwiSaver recommendations if you want to have money for your retirement. Gotcha.”

These are just a handful of comments on the adverts I help run for ethical KiwiSaver provider Pathfinder. Sometimes reading these sucks my will to live, but mostly I find it fascinating because it illustrates just how unconvinced many people are that you can make money from ethical investments.

That these kinds of comments proliferate is evidence of two things: one, men have too much time on their hands (around 99% of negative comments Pathfinder receives are from men) and two, many people believe good people can’t make good money.

I would go so far as to say there is a stigma around people who have money, a stigma that suggests they can’t also be ethical. By this I mean, concerned with how their actions impact others and dedicated to making decisions that balance their overall wellbeing with that of the collective.

Deeply encoded in our psyche is the idea that to be wealthy means being selfish. Probably not surprising considering the shareholder revolution Milton Friedman set in motion in 1970 when he declared that the “social responsibility of business is to increase its profits”.

This created an intellectual framework for people hungry for power and money, using the parlance of economic theory to justify unmitigated greed without consideration of the broader consequences. As the global economics correspondent for the New York Times, Peter S Goodman, puts it: “Executives could justify no end of abominable behaviour – poisoning the air, accelerating climate change, firing American workers, and moving production overseas – because not doing these things amounted to ripping off the shareholders.”

The world we live in now is a daily reminder of the consequences of elevating those motivated only by profit into positions of power. So, it’s rational to have some misgivings when executives change their tune and start saying they believe in “stakeholders” now, not just “shareholders”. Interestingly it goes both ways; people who want to make a profit deeply mistrust the idea of doing it ethically. People who consider ethics when making key life decisions (where to eat, where to work, how to vote) take some convincing that how they invest their money can also be done ethically.

So, is there a Venn diagram where good and profitable overlap? That’s what investment companies like Australian Ethical, Pathfinder and Prince Harry’s pet project Ethic are working on. As of 2022 Australian Ethical manages $6 billion, up from $4 billion in 2021. New Zealand’s equivalent Pathfinder KiwiSaver was just ranked number one for investment returns in each fund category according to Morningstar. Morningstar measure s20 conservative funds, 30 balanced and 29 growth.

Three-year returns are regarded as a reasonable, but still, relatively short period from which to draw any conclusions. If you’re in KiwiSaver, it’s often recommended that you hold a growth fund for at least ten years and a balanced fund for at least six years.

However, it’s an indication that the tide is turning. Money is being made by investment firms that use a framework that takes more than just profit into account. Mindful Money, the NZ charity set up by former Green MP Barry Coates, enables transparency around what their investments are actually supporting. It awarded Pathfinder Best Ethical KiwiSaver Provider two years running (2021 & 2022).

This offers at least some measure of third-party validation that members in that KiwiSaver aren’t exposed to as many negative impact investments as others. It also awarded Devon for its new Global Sustainability Fund, New Zealand Superannuation Fund for dedication to net-zero and carbon action and Ethical Investing NZ as Best Ethical Advisory firm.

Whether the Facebook trolls will be moved to invest in renewable energy if it offers superior returns is something only time will tell, but I think strong returns from ethical investing offer a big section of New Zealand a serious reward. Namely, the chance to practice what we as a nation love to preach.

Adherents of the “green lifestyle” we’re a people who want to keep the waterways clean, the ecosystems thriving, the dotterels nesting and the kids fed. But we also aspire to own a bach, take holidays on tropical islands and afford to eat well after we retire. Being told we can have both seems too good to be true, but it really isn’t: it’s true and it’s good.

This commentary is general information only and does not consider your personal circumstances. It’s always a good idea to seek professional financial advice. Future performance is not guaranteed.