What is Bitcoin and is it an ethical investment?

Bitcoin is the talk of the town right now, mostly because it’s value has risen almost 500% in 2017 alone.   So no surprise, someone asked me the other day if at Goodments we see it as an ethical investment.

Now although we don’t pretend to be the authority on what is and isn’t ethical, as an app that matches you to shares based on your values, we take a lot of interest in the area.

Generally, when talking about a currency, people don’t consider ethics of the currency itself.  They might have a view on the country and if it aligns to their values and morals. But rarely would they look so closely at the currency in isolation.  In the case of Bitcoin though because it’s more than just a currency, we can consider it on its own.  Not least because it crosses borders and is a disruptive technology that impacts the world we live.

What is Bitcoin really?

Simply put, Bitcoin is a digital currency which can be used for payments and as a store of value. It operates outside of existing financial systems and offers the ability to instantly transfer money and property at very low costs.  Other digital currencies include Ethereum, Litecoin and Monero.

There are no physical bitcoins and as a result all balances are kept on a public ledger in the cloud. All Bitcoin transactions are verified by a massive amount of computing power.  New ‘coins’ enter circulation using additional computing power, based on developing code to release new coins.  Known as Bitcoin mining, this involves solving a computationally difficult puzzle to discover a new block, which is added to the blockchain, and receiving a reward in the form of few bitcoins.  It’s supremely geeky stuff.

Is it an Ethical investment?

At Goodments, we know that ethics and sustainability are in the eye of the beholder.  What one person thinks is ethical or sustainable may be different to someone else.

That said, sustainable investing can be assessed against 3 key criteria; Environment,  Social and Governance (also termed as ethics or transparency).  Ultimately, for investors looking to make an ethical investment, will this share have a positive (or neutral) benefit to the environment and/or society.  So we’ve considered Bitcoin through that lens.

  1. Environment

As we look at Bitcoin, right now there are some significant negative environmental impacts.

Wired recently reported that each bitcoin transaction requires the same amount of energy used to power nine homes in the US for one day. And miners are constantly installing more and faster computers. The total energy use of this web of hardware is huge—an estimated 31 terawatt-hours per year. More than 150 individual countries in the world consume less energy than this amount annually! 1

Some argue that although this is significant, it is less than the banking sector.  However, at this stage Bitcoin is a counter currency, new to the market and should be starting out on a better footing with greater efficiency.

  1. Social

Assessing the social impacts of Bitcoin is challenging as there is little data available.  What it is doing is helping to equalise wealth, making a great deal of new and young investors incredibly wealthy.  According to Bitpay, Bitcoin is supporting less developed economies with Latin America showing the fastest growth in transactions. 2 Depending on which side of the fence you sit, there is an argument that the anonymity that Bitcoin transactions bring are a benefit to heavily surveillance societies.   But at this stage it isn’t clear if Bitcoin is just creating a new wealth gap, present across a younger tech-savvy generation.

  1. Governance

Governance is commonly understood to be a measure of transparency, control and accountability.  Today, Bitcoin is inherently secretive and protective of providers and users, it’s unregulated and control sits with few secretive independent ‘miners’.  There is also a lack of protection for people who get hacked or lose their money.  In many ways, it operates on the black market (or dark web) which doesn’t help it rate well on the governance front.

So….

On balance, Bitcoin today probably can’t be seen as an ethical or responsible investment. But what about in the future?

The future of Bitcoin

Today, we are not even truly sure if Bitcoin and cryptocurrencies as we know them will be around in 5 years, or if they will be replaced by something completely different and as yet unknown.

Brian Forde, former White House Senior Advisor and current Director of Digital Currency at the MIT Media Lab compares the infancy of bitcoin and cryptocurrency to the early days of the internet and the introduction of email.  Which we now know was the tip of the iceberg.

There is much commentary about the opportunity for Bitcoin to be a game-changer when it comes to wealth distribution.   If Governments were to embrace it, as secondary to their national currency, and experiment with its use to distribute wealth (e.g. as a source of universal income or benefits) it could be used and regulated to lift huge portions of society out of poverty.  Its digital nature brings with it the possibility of regulating and monitoring it.  Allowing Governments to keep it in the hands that need it and on the goods they need without risks of it being corrupted – in the way an untraceable physical currency can.

In conclusion 

Goodments doesn’t yet enable our investors to invest in Bitcoin on our platform.  Today, it’s draining on our environment and lack of regulation make it an unlikely candidate for Ethical Investment of the Year.  But if as Bitcoin could be used in a more positive way in the future, it is something we look forward to seeing unfold.

Ethical investors looking to invest on their terms.

Ethical investing, otherwise know as sustainable or responsible investing is on the rise. Some reports put the growth rates at 86% year on year for the last 3 years,  with billions of dollars now invested ethically around the world.

But where is the growth coming from? We at Goodments, a new invetsment app that matches investors to shares based on their environmental, social and ethical values, believe its coming from millennials.

We’ve has conducted a number of pieces of research over the last 6 months and the following are a collection of our findings:

The number of young australians who identify with ethical investing .             Goodments Survey (1200 online  Australians) 

We are always surprised at the maturity and foresight, particularly of our younger supporters, when it comes to both their responsibility to live their in a sustainable way, but also to manage and grow their money with the same mindset. We’ve met people in their final year of university who are signing up to Goodments as they want to be prepared for when they enter the workforce. As well as people who are a few years into their careers with savings accounts of $40k +, who are now starting to look at alternatives to cash savings, to help them grow their wealth in a sustainable way and allow them to get ahead.

Whats interesting, is that when it comes to the balance of financial performance and sustainability performance, these more ethically minded investors are willing to accept slightly lower financial returns for good environmental, social and ethical performance.

The importance sustainability performance when it comes to investing. Survey of Goodments customers
 

Luckily, this could be a mute point, with plenty of research now suggesting that investments in sustainable companies, outperform investments in their less sustainable peers.

There are commonalities in personality traits of those want to invest ethically. The strongest and most common traits focus on empathy, thoughtfulness, imagination and a desire to overcome challenges. These traits tend to manifest themselves in the ability for people to accept uncertainty and process abstract information. All key strengths when it comes to thinking about taking action on sustainability issues and to process the often disparate information sources to form a view of a company to invest in.

Key personality traits found in ethical investors. Survey of Goodments customers. (Personality research completed in partnership with Veebit). 

Although there are common personality traits between sustainable investors, there are differences in what causes each person holds closest to their heart. These preferences influence what business practices different people want to support.

Common causes ethical investors want to support and promote. Survey of Goodments customers. All designs owned and reserved by Goodments.

Likewise, there are key differences in what each person deems to be unacceptable when it comes to investing in companies.

Business practices that ethical investors choose to exclude. Survey of Goodments customer. All designs owned and reserved by Goodments.

Overall ethical investors are looking to invest on their terms. This means that increasingly they are looking for a more complete picture of a company’s performance, which includes not only financial performance but also environmental, social and ethical performance.  When making their choices in which companies to follow and which to exclude, the decision becomes very personal.

Author: Tom Culver, Goodments CEO and Co-founder.

Join the waitlist: http://www.goodments.com

Image: Martin Reisch

Adieu Paris. Business leaders putting their hands up to take responsibility. 

This weekend we saw Donald Trump make the decision to opt the US out of the Paris climate accord. A global, non-binding,  agreement to limit the increase in global temperatures to 2 degrees, aiming to safeguarding the future of the plant for today’s and future generations.  It initially took America under the leadership of Barak Obama to get all but two countries to sign the agreement.  The US now joins Syria and Nicaragua as the 3 countries who wont commit to the cause.

Trump’s reason for opting out;

  • The agreement “disadvantages” the US.
  • The deal left “American workers, who I love, and taxpayers to absorb the cost in terms of lost jobs, lower wages, shuttered factories and vastly diminished economic production.”

The CEOs and leaders of many big American companies have different views, committing to pursue the goals laid out in the Paris agreement, as well as their own initiatives.  Why? Because as global corporations,  they understand the influence they can have at a global scale. These leaders also see the opportunity to invent new technologies and advance the way the world does business in order to change the world extraordinary ways.

Facebook:

Screen Shot 2017-06-03 at 3.25.03 PM

 

Google:

General Electric:

Microsoft:

It also led to the CEO of Disney, along with Elon Musk to leave the president’s business council:

It wasn’t only business leaders,  the states and citizens Trump believes he made this decision for also rejected his reasoning.

“I was elected to represent the citizens of Pittsburgh, not Paris,” Trump told the world. Never mind that the good folks of Pittsburgh are citizens of the United States.  The response:

“So we’re getting out,” Trump explained in his announcement.  Thankfully this decisions doesn’t seem to matter to a number of the world most influence business leaders.

It could not be all over…….According to the experts it will take 4 years for the US to exit the agreement. That just so happens to be the day after Trumps last day in office (assuming he makes it to the end of his term and doesn’t get a second one!).

You might also be interested in Corporations not Government lead to a sustainable future.

Ever wondered how your investments perform when it comes to ethics and sustainability?

It’s sometimes argued that including environmental, social or governance (ESG) factors into your investment decisions isn’t an investment strategy in itself. That may be, but when you consider that sometimes as much as 50% of company’s value is made up of non financial data, if you’re not taking ESG into account, then you probably don’t have the complete picture of how the company you are backing is performing now, or in the future.

You can use this tool to check out how your investments on the ASX 300 fair.

According to RIAA, about 50% of institutional investors in Australia use ESG in their investment strategies. Some do it because its a better indicator of long term risk and return. ESG allows others to invest in their view of the future, think solar over for coal for example. Some use it to ensure that they are not investing in business practices that don’t align to their values. For whatever reason, there is plenty of research to indicate that more sustainable companies outperform their less sustainable peers over the long term. Which means having a more complete picture could result in higher returns.

What is ESG?

ESG (environmental, social and governance) is a generic term used in capital markets and by investors to evaluate corporate behaviour and to help determine the future financial performance of companies.

  • Environment assesses key business practices ranging from emissions and carbon intensity, waste management and recycling, to green energy production. By lowering expenses (e.g generating solar power rather than buying energy) and creating efficiencies (e.g lowering packaging cost through recycling), can all have a material impact on bottom line.
  • Social assesses key business practices focussing on workers and human rights. Topics such as diversity, (which at a board level has shown to reduce company risk and increase share price value), supply chain and supplier standards, human rights and justice, community development and even staff happiness (which research suggest has a material impact on productivity and therefore profit).
  • Governance relates to corporate structure, board independence and transparency and even covers a businesses stance on certain practices, such as animal testing. Some consider this a fundamental view of company and management ethics and ethos. Governance is generally considered by investors to be an integral part of assessing corporate risk through understanding how a business is conducting its affairs and can therefore be a lead indicator on assessing the potential risk of any investment decisions. For example some ESG assessors were able to flag transparency and governance issues at VW, which were the precursor to the recent emissions scandal which permeated through the entire business.

Benefits of ESG to risk and return

Capital loss: at its most basic level, using non financial indicators to identity risk helps to protect the capital you’ve invested and can go a long way to increasing long term returns. For example, if you have a $1 invetsment which loses 50% of its value, you have $0.5. To get back to a dollar you now need a 100% return, not a 50% return. Simple protection of invested capital to increase long term returns is often overlooked by investors and assessing ESG factors can help.

Returns: whether the link between outperformance and high ESG ratings are casual, or simply correlation, its hard to argue the benefits to a company’s bottom line and share price. One current trend for using ESG is to identify long term investment opportunities. If you are going to invest $1 today for 10 or 20 years, are you going to invest it in mining or solar technology? A growing portion of society and investors would back the long term opportunities in new clean technologies rather than any potential short term return uplifts in higher risk carbon intense assets or practices. A second key trend is investors looking to make money and do good at the same time. ESG help investors understand that these two things do not need to be mutually exclusive.

How can you use ESG to invest?

  • The positive screen: systematically select sectors, companies, and practices based on areas that align to your values. Commons positive categories include recycling and waste reduction, renewable energy and clean tech, protection of natural environment, human rights and employee conditions, community development, diversity and equality, corporate transparency, corporate sustainability policy.
  • The negative screen: systematically excludes industry sectors, companies, practices, or countries based on specific ESG or ethical criteria. This approach is also often referred to as values-based, or ethical screening. Common screens include gaming, alcohol, tobacco, weapons, pornography and animal testing but now expand to things like sugar or fast food.
  • Best of breed: investment in sectors, companies or projects selected for positive ESG or sustainability performance relative to industry peers. Suitable for those investors who want to maintain investments in industries that might otherwise be screened out, but select those that are performing the best from an environment, social and governance perspective.

You can use this tool to check out how your investments on the ASX 300 fair.

Author: Tom Culver is the CEO and co-founder of Goodments.

*The information in this post and the links provided are for general information only and should not be taken as constituting professional advice from the Author.

Image: Emily Morter

What to do with your cash until the property bubble bursts

A discussion on how to save for a house and still have smashed avo on toast.

This month we heard that Australian Millennials have the second lowest rate of home ownership in the world. On top of that, the Governor of the RBA, Philip Lowe, declared that the current growth in the Australian property market is unsustainable. So I thought I’d share some thoughts on your options for your hard earned cash until the bubble bursts. These tips have been curated through experience — both personal and professional — and from the guidance of others.

Today there are a lot more options than just leaving your dollars under your mattress at home. So here goes:

The bank:

If you’ve got plans for the money in the next few years, the safest place is probably the bank as you should be thinking about protecting your money as much as growing it. Or at least leaving a good chunk in a savings account.

Investing:

There are lots of investment sites and managed funds available online these days. If you’re not going to need the money for 3+ years, this is an option (always best to try and leave 1 to 3 months net salary in the bank for a rainy day though).

The golden rules of investing pretty much go:

  • Start small. No cowboy/girl antics. Start with a little and see how you go.
  • Invest over time. Regular investing can reduce the risk of dropping it in the market on a bad day. It can increase your long term returns too.
  • Diversify. Diversify. Diversify. Eggs in lots of different baskets, whether that is different shares (e.g. Tesla, plus Apple, plus A2 Milk) or different types of investments. You can see the benefits of diversification from as few as 6 different stocks.
  • Invest for your stage of life. If you’re nearing retirement, you need to be much more careful. If you can leave the money on the market for the long term, you can take a little more risk.

So where to start? Here are some popular options that weren’t even around a few years ago:

Micro-investing: Sites like Acorns allow you to set up an account and add to it regularly, by what they call ‘roundups’. Imagine you buy a coffee for $3.50, then the 50 cents that rounds it to the nearest dollar would go into your investment account. It’s mini-investing without thinking about it.

Robo-advice: Companies like Stockspot allow you to get automated financial guidance on where to invest you money. They call themselves a digital investment advisor. A good idea if you want automated advice and aren’t keen on paying the bank.

Sustainable investing: Companies like Goodments allow you to invest in shares without compromising your values.Research shows this is often a better long-term investment. If you think renewable energy will take over from fossil fuels, why would mining be a good investment anyway?

Equity crowd-investing: An evolution of crowdfunding sites, companies like Equitise let you buy shares in a company, so you can support start-up businesses and hopefully make a mint in return.

Peer-to-peer lending: For something a little different, you can use a site like Society One to lend your money to someone else like you. You should get good returns on your money and they will get a better rate than they would from the bank. Think of it as ‘people backing people’.

On-demand advice: places like Nod allow you to pay per question for advice from professionals without committing to a long-term relationship. Good if you have a burning question you want a quick answer to.

I think that is a pretty good place to start. You can ponder your options over some smashed avo on toast.

Author:

Tom Culver is the CEO and co-founder of Goodments.

*The information in this post and the links provided are for general information only and should not be taken as constituting professional advice from the Author.

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