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

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

More than three quarters of people agree that sustainable investing is more important than it was three years ago, while 78% anticipate it will be more important three years from now. In the U.S. assets managed with sustainable investing criteria has already increased more than 135% since 2012. (2)

This attitude coincides with Millennials becoming the largest generation in the world’s workforce in 2016, and in 2017, becoming the generation with the most spending power. A generation also thought to be the most purpose driven generation ever when it comes to spending their money.

According to research conducted by Morgan Stanley in 2015, 86% of Millennials said they are interested in socially responsible investing. Similarly, 86% of respondents in Deloitte’s Millennial Survey 2017 believe that the success of a firm should not be judged purely with regards to financial performance. A survey by Standard Life Investments (2016) shows that nearly 70% of 25–34-year-olds were concerned about social and environmental issues as much as returns when investing.

Its these investors that are bringing increased attention to sustainable, responsible and impact investing as many look to make money and do good, by seeking positive social and environmental impact alongside positive financial returns.

Overcoming the perception that positive change comes at the cost of performance.

Millennial interest in sustainable investing comes at a time of increasing evidence of the positive performance potential in these types of investments.

A 2015 study from the Institute for Sustainable Investing found that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments, both on an absolute and a risk-adjusted basis, across asset classes and over time. An example of this in action are the findings of the Carbon Clean 200 report, Q3 2016, which ranks the largest publicly listed firms worldwide by their total clean energy revenues. The companies on the list were found to be outperform their more polluting counterparts by as much as three times.

The 2015 study showed a lower level of volatility for companies that score well on ESG, as they tend to be less vulnerable to negative headline risks, large-scale lawsuits or environmental risks. Another reason according to Bryce Doherty, UBS’s Head of Global Asset Management, is that “about 70–80 per cent of a company’s value is represented in non-financial data — the ESG data.” Using it gives you the complete picture of a company’s performance, making it a potentially better indicator of overall performance and risk.

Sustainable investing is part of a bigger movement

Today’s younger consumers now expect brands to go above and beyond when it comes to companies conducting their business in a sustainable and ethical. A new survey conducted by marketing research firm Toluna, shows that 50% of Millennials now actively seek out brands that align to their values. In fact, some reports suggest that 90 per cent of global consumers are now more likely to switch to a brand associated with a good cause.

When looking beyond at consumption behaviour, the rise of sustainable investing is not so surprising. The challenge this generation of ethically minded investors face is how to navigate the complex world of investing to find investments that align to their own personal values.

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