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Marriage has changed my investing behaviour. You see, my wife is a bit of a hippie. Not the type with hairy armpits, but rather she's concerned about the environment, sustainability, and all the touchy-feely elements I had long hardened myself against. As a result, we recycle everything, our daughter only drinks organic baby formula, and from an investing perspective I have to provide enough comfort to my wife that the funds we own will seek out sustainable and/or ethical investments. This has proven much harder than you would think.

Do a quick search on the Morningstar database of over 780 Kiwi funds for names with the words �ethical� �responsible�, or �SRI� (socially responsible investing) in them, and you get a paltry five funds. Why is this? In the 'clean green' country that is New Zealand, I find it interesting that there isn�t more of a focus around sustainable and 'ethical' investing. Widen the search across the Tasman to Australia and the number grows to around 25.

Table 1: Funds in the Morningstar New Zealand Database Labelled 'Ethical', 'Responsible', or 'SRI'

Why is this? Essentially, because 'ethical' investing truly is in the eye of the beholder. Let me give you an example. During a fund a review with a prominent 'ethical' fund manager, we were told that the fund manager had removed the restriction on investing in alcohol. Why? Simply put, the fund manager realised that most of the investment team drank alcohol, there are some great investments to be had in the beverage industry, and they didn�t think it was an overly 'ethical' stance to leave it out.

Many 'ethical' funds simply employ negative screens. This means they will have an exclusion list of sectors and sometimes companies into which they do not invest. All the funds in the accompanying table have exclusions related to alcohol, armaments, tobacco, and gambling. AMP Capital Responsible Investment Leaders Global Shares is the only one to also explicitly exclude pornography and uranium in its disclosure documents. But just because a company has exposure to one of the above areas doesn�t mean that the area will necessarily be excluded entirely. Woolworths in Australia owns a number of large alcohol stores. So should it be included the investible universe? Some fund managers believe the answer is yes, and others no.

Uranium is also an interesting one. Again, some 'ethical' funds exclude it, while others are willing to invest. Uranium has been used extensively by the military in high-density penetrators as well as being used to produce nuclear weapons. BHP Billiton is one of the world's top producers, and one company that my wife has on our banned listed of investments, yet it features  in a number of Australian 'ethical' funds' portfolios. (It's also questionable whether Australia�s largest company is 'ethical' or 'sustainable', given the huge amount of exploration and permanent damage that the firm does to the land and the environment. That�s also something I never thought about before I got married.

Sustainable is not Ethical
There is a high degree of overlap between what are generally meant by 'ethical' and 'sustainable' investing, but it�s important not to get the two mixed up. 'Ethical' investing will generally restrict investments in certain companies and sectors through negative or positive screens, or both. A sustainability bent doesn't mean that a fund manager automatically screens out certain sectors. Instead, each potential holding is assessed on its economic, social, and governance performance. It�s an interesting approach, and one that I know my wife would prefer. Generation Investment Management, founded by Al Gore and David Blood, is one of the best-known sustainable investment managers. Many confuse this company for an 'ethical' firm. It is not. KiwiSaver investors can get access to this option through FirstChoice KiwiSaver Global Sustainability.