The world of finance is becoming increasingly aware of the impact that investments can have on the social and environmental wellbeing of a company or an industry. The recent growth in so-called “impact investing” has been driven by a desire to align financial returns with social and environmental impact.
Ethical or responsible investing is an umbrella term that describes investment strategies that attempt to screen out or reduce exposure to stocks that may be considered as unethical on some criteria. Ethical investors avoid companies involved in something they deem as unethical, such as alcohol, tobacco, gambling, weapons production, etc. They also prefer to invest in companies with high standards in ethics, human rights and so on.
This article aims at introducing you to the world of ethical investing and explain the principles behind it.
What Are Ethical Investment Funds
If you’re investing purely for financial gain, then ethical investment funds may not be for you, but if you are looking for a way to invest that aligns with your personal values, and where the profits from the investment go towards social or environmental causes, you may want to consider ethical investment funds.
Ethical investment funds aim to integrate social and environmental concerns into investment analysis and decision making. There is no one definition of what constitutes socially responsible investing, but the common theme is investment decisions based on more than pure financial considerations.
Ethically-motivated investors seek to invest in companies that behave ethically and/or whose products are ethically produced, are environmentally sustainable and provide decent returns.
Benefits of Ethical Investment Funds
For one, ethical investment funds tend to perform better than non-ethical funds. Research shows that they outperform the market on average by 90 to 130 basis points per year.
Secondly, you can use your investment profits to fund social causes you care about such as helping the environment, or supporting healthcare, education, and other public services. You can help improve corporate behaviour by supporting high-quality socially responsible investments.
Ethical investment funds help combat climate change by reducing your carbon footprint through your investments. This can help minimize your tax bill too, as you can claim a rebate on the costs incurred.
Good Ethical Investment Strategies
Identify Your Values
Once you’ve decided to go down the ethically-responsible investment route, you’ll need to choose an investment fund that fits with your values and are in line with your investment strategy.
You can use online guides to help you decide which values might resonate with you the most.
Look for Companies That Are Doing the Right Thing
There are thousands of companies to choose from, so look for those that are doing the right thing – this could be on environmental issues, fair trade, or other issues that are important to you.
Invest in Your Own Future
It is important to think about how your investments can help you achieve your future goals. If you want to start your own business, it’s important to make sure you are investing in the right sectors.
In Conclusion
There are many benefits to ethically investing in stocks and shares, not least that you can make a positive impact on the world, something that will benefit future generations too. However, it is important to remember that even ethical investment portfolios have risks associated with them.
All in all, ethical investing is a great way to make a positive difference while you’re investing. And, with the growth of social impact investing, ethical investing has never been easier.
