How we help responsible investors to more effectively achieve their goals

The inclination to be more responsible is changing how many consumers are choosing to live their lives, and also how they invest. People want more of a say in how our society is shaped and where their money is directed as they prepare for their future. We now offer investors more choices to help them decide what works best for them.

What is socially responsible investing?


Socially responsible investing (SRI) is an investment approach that places the traditional goals of financial returns alongside explicit social and environmental considerations. In this way, the context of the type of industry that companies operate in, or the conditions in which different stakeholders are treated becomes more important. It focuses on companies that look to make a positive difference in such areas as the environment, human rights, in the workplace, through protecting consumers and by promoting racial and gender diversity.


Some companies may refer to their approach as one that focuses on environmental, social and governance (ESG) factors, and ours is very similar. The terms are often interchangeable, but we believe SRI is more appropriate as it goes further than ESG, by explicitly excluding or adding investments based on specific ethical considerations.


An SRI approach can aim to avoid companies perceived to have a negative societal impact. This may include those that generate most of their profits from unethical sectors such as fossil fuels, tobacco, weapons, gambling and pornography – a list that might also add extra components such as alcohol and fast food.


There are various ways to screen for companies that meet certain criteria and to exclude firms that don’t. Yet those that prove attractive to investors are commonly organisations with a purpose strongly aligned to the challenges we face as a society and on the planet.


Why are we now making responsible investments available to investors?


It’s worth stating, that rather than being first, or even quick out of the blocks, we wanted to get responsible investing right. There is a lot to consider – including the uncertainty inherent in a fast-growing sector – and we are keen to provide relevant and tested solutions, without compromising our highly cost-effective offer or the quality and transparency we seek in our core investment approach.


Now the demand is there, and we have been working hard behind the scenes for some time building a track record and ensuring investors get the responsible investing choices they would like – while maintaining the experience they enjoy with us as a client. Making the SRI portfolios more widely available is a vindication of the extensive testing we have carried out and the resilience these investments have shown over the past few years.


How do we build our responsible portfolios?


Socially responsible investing can mean different things to different people. Our research has suggested two things quite clearly. Firstly, that investors want to continue to focus on cost-efficiency and the way that can give a tailwind to performance. Secondly, people are keen to understand how their investments reflect the challenge of climate change.


We will continue to invest portfolios in a diversified basket of exchange traded funds (ETFs) just like for clients with core portfolios. For clients seeking a socially responsible approach we will exclude those companies with the most negative social or environmental impact, and enhance exposure to stocks which score best on the same criteria. Explicitly, we filter out the types of companies with the most negative impact on climate change.


For this reason, our SRI portfolios invest in ETFs aligned with the MSCI Socially Responsible Investing family of indices, which have a number of exclusions and target the best 25% of the broader market capitalisation.


What are the choices?


As with our core investments, investors can choose from portfolios with risk levels that span from 1 to 7 – with 7 offering exposure to higher risks. Typically, the more risk you take the higher the potential rewards, but a longer timeframe is usually better to recover any potential losses.


What are the benefits of responsible investing with Netwealth?


  • Increased diversification – investors get the opportunity to access opportunities they may not get elsewhere


  • Cost effective – this is one of the core pillars of Netwealth’s offer, and our fees are no different for SRI portfolios (although fund charges and trading costs are slightly higher). See our fee breakdown here 


  • Forward-looking opportunities – companies which score higher from an SRI perspective are typically companies which adapt quicker to societal and environmental changes. So they are often at the vanguard of change, and could be more likely, for example, to avoid higher regulatory costs, litigation and brand erosion, as this Morningstar article highlights


  • Investors can better align their responsible personal objectives with their investment goals


Do we manage responsible investments and monitor their progress similarly to other Netwealth portfolios?


For all our portfolios, an experienced team looks after your investments and makes day-to-day decisions on your behalf. This includes regular portfolio rebalancing, income re-investment and capital gains tax optimisation and much more – the things that put us at the frontier of modern wealth management.


We aim to minimise the difference in performance between our SRI and core portfolios that isn’t driven by any other unintended discrepancies in portfolio exposures, such as regional or currency allocations. However, to minimise the risk of greenwashing – where companies claim to be more environmentally friendly than they are – there are substantial differences in underlying companies invested via our ETFs. Performance has and will diverge between the two portfolio ranges.


Other areas of difference will be in the allocations to bonds and alternatives. Issuers of corporate bonds can be subject to the same analysis as equities within an ESG framework, but consideration of government bonds is trickier.


Broadly, we think the governance and climate considerations of leading developed countries such as the UK are more credible than the emerging market countries which can be accessed by ETFs. The ESG conflicts of investing in commodities and certain other natural resources are also challenging, so we are excluding them from client portfolios for now.


Is it possible to have some responsible investments and some traditional investments in the same portfolio?


No. But you can easily have more than one portfolio at Netwealth. For example, you could have a core risk level 5 portfolio and an SRI risk level 7 portfolio. We give you the choice to adhere to and balance your overall objectives.


How do you get started?


If you would like to get a clearer view of the potential outcome for your socially responsible investments, you can register for free to use our powerful online tools, and select the SRI option.


You can then model for various factors such as how much you would like to invest and for how long, inflation, whether you want to take a set income, and how much risk you would like to take. The outputs then show you which variables you may need to adjust to help you achieve your goals.


If you have any other questions about how SRI can help you to invest according to your principles, please get in touch.



Please note, the value of your investments can go down as well as up.

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