5 tips for an ethical investment in tech stocks
Growth of tech stocks
According to investment advisersMorningstar, technology stocks account for 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 ofmore than US$4 trillion.
Tech stocks also take center stage in Australia. We’ve seen the rapid rise of “buy now, pay later” companies such as Australian-owned Afterpay and Zip.
At the same time, we’ve seen an increase in the number of Australians moving to ethical superannuation funds and ethically-managed investment schemes. The latter lets investors contribute money (to be managed by professional fund managers) which is pooled for investment to produce collective gain.
It’s estimated indirect investment through these schemes has increasedby 79%over the past six years.
What is ethical investing?
While ethical investing is a broad concept, it can be understood simply as putting your money towards something that helps improve the world. This can range from companies that advocate for animal rights, to those aiming to limit the societal prevalence of gambling, alcohol, or tobacco.
Although there is no strict definition of ethical investment in Australia, many managed funds and super funds seek accreditation by theResponsible Investment Association Australasia. The “ethical” aspect can be grouped into three broad categories:
As investors, we must be very careful about the fine print of the companies we invest in. For example, accreditation guidelines dictate that a managed investment fund excluding companies with “significant” ties to fossil fuels could still include one that earnsup toa certain amount of revenue from fossil fuels.
So while investment managerAMP Capitalis accredited, it can still include companies earning up to 10% of their revenue from fossil fuel distribution and services.
5 tips for ethical tech investment
Many technology stocks are well-placed for ethical investment, and you can choose to invest on your own, or indirectly via a managed investment fund. In either case, you should do some basic homework first.
1)Monitor the fund or company to ensure standards are maintained
For a company to be listed with the Australian Securities Exchange (ASX) it has to be publicly listed. It is therefore required to submit an annual audit report (audited by third-party auditors) to the Australian Securities and Investments Commission (ASIC), as per theCorporations Act 2001.
You can also contact ASIC forfurther informationabout a company listed on the ASX. The equivalent body for American companies is the USSecurities and Exchange Commission.
If a company backtracks on the very ethical standards that prompted your initial investment, you should consider withdrawing your investment.
2)Stay updated on reported ethical breaches
Reputable news reports are useful on this front.Amazon, Facebook, and Alphabetare recurring names in reports aboutunethical practicesin the tech sector.
While you can access plenty of information about a tech company from its own website and distribution channels, this is usually embellished and/or handpicked by the company itself. Make sure your information comes from diverse sources.
3)Consider how employees rate the company and why
Keep in mind a technology company might be environmentally ethical but still fall down on other issues, such as gender pay parity, for instance. It’s important to listen toemployees’ claimsabout a company’s internal workings as such insight may otherwisebe unavailable.
There are a number of independent sites reporting on corporate culture ratings, includingGlassdoor.
4)Assess the environmental, social, and corporate governance (ESG) score
One benefit of investing in large tomedium-sizedtech companies is the ability to analyze their ESG score, issued by agencies such asRefinitiv. This score reflects how well the company adheres to ethical practice across environmental, social , and corporategovernance-relatedmatters.
5)Watch out for buzzwords
If you’re looking to invest in clean technology, watch out for buzzwords used in company reports. These are terms which at face value may seem to align with your own ethical investment values, without actually delivering.
For instance, “carbon net zero” and “carbon neutral” arenot the same thing. This is an important distinction to consider if you’re wanting to make environmentally-responsible investments.
This article byAngel Zhong, Senior Lecturer in Finance,RMIT UniversityandBanita Bissoondoyal-Bheenick, Associate Professor and Associate Dean Finance,RMIT Universityis republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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