In the last few years, the idea that our money does not just have to be a store of value but can also be used as a tool for social and personal change has become fashionable. This has led to many investment opportunities being pitched as ‘ethical’.
Ethical investing is the strategy of investing in companies or funds that support positive social or environmental causes. And as we’ll see throughout this article, there are many compelling reasons why you should consider ethical investing in your portfolio.
If you’re keen on learning more about what ethical investing is and how you can use it to help humankind.
What Is Ethical Investing?
A lot of people confuse ethical investing with socially responsible investing (SRI). Although they are related, SRI is a broader category that includes ethical investing. So, before we get into what ethical investing is, we first need to quickly address what it is not.
Ethical investing doesn’t refer to an investor putting principles above profits or avoiding stocks because they breach their personal moral code. Instead, it refers to an investment strategy that supports businesses, organisations, or funds that support positive social or environmental causes.
While SRI includes avoiding companies involved in industries such as tobacco, fossil fuels, and weapons, ethical investing is more focused on impact – how companies make a difference through their products and services.
Why Consider Ethical Investing?
Aside from the fact that it is simply the right thing to do, there are many compelling reasons why you should consider ethical investing in your portfolio.
For example, some investors may choose to do so because they feel that a company’s products or services are harmful to the environment. Additionally, some investors might choose to do so because they feel that a company’s products or services are harmful to people.
Other investors might choose to do so because they feel that a company’s products or services are not helpful to society as a whole. And other investors might choose to do so because they feel that a company’s products or services are helpful to society as a whole.
Furthermore, ethical investing can also help you generate better returns. Research has shown that ethical funds tend to outperform their non-ethical equivalents, primarily due to their lower risk profiles.
How To Implement an Ethical Investment Strategy
There are several factors to consider when creating a strategy for ethical investing, including country, sector, and company-level factors.
Two of the most important country factors are the country’s level of environmental sustainability and the level of social justice within the country. Sector factors include the level of impact different sectors have on the environment and the level of social impact different sectors have on society. Company-level factors include the company’s level of impact on the environment and the level of social impact the company has on society.
Once you’ve identified the factors that are most important to you, you can build a portfolio that reflects your values.
The Bottom Line
Investing ethically is about making deliberate choices about the types of securities that you’ll own. While it might be tempting to go for the stocks and other securities that offer the biggest returns, investing ethically is about more than just making money; it is about making a positive impact on the world. When you invest ethically, you’re not only helping your own finances, but you’re also helping to make the world a better place for all humankind.