5 Ethical Stocks To Own

You don’t have to abandon your social values when you invest: “good” stocks can provide strong returns too, without the guilt factor

- Nathan Bell

Ethical investing has long posed a problem; how does one decide what is ethical and what is not? Instead of arguing over what is ethical, at InvestSMART we exclude what almost everyone agrees is unethical.

Applying what is known as an ESG filter, by assessing a stock for environmental, societal and governance risk factors, gambling and casino companies, alcohol-related businesses, resource companies plus a few more sectors are removed from the universe of stocks in which we’re prepared to invest.

That removes about 100 companies from the ASX 300 index. To the remainder we apply the same Intelligent Investor value investing process that has served members well over the past 20 years.

The value of an ESG filter sounds arcane, but shouldn’t be underestimated. Applying it to the 420 Intelligent Investor buy recommendations since 2001 delivers an average annualised return of 14.8%. These five ethical stocks were among them. The 60-odd stocks that failed to pass the filter produced annualised returns of just 10.1%.

This shouldn’t be a surprise. High-quality companies that can consistently produce profits over time tend to have powerful competitive advantages that reduce competition and deliver pricing power. The first of my five key ethical stock selections is the perfect example.

1 CSL

The global biotechnology company develops and delivers innovative medicines that save lives, protect public health and help people deal with life-threatening medical conditions. With operations in more than 60 countries, CSL employs 22,000 people. Since listing in June 1994 at $2.30 a share, the price has risen more than 100-fold.