Ethical investing is an investment strategy that aligns an investor’s personal code of ethics with their investment portfolio. So, if you want to invest but are worried about supporting companies whose products or business practices you don’t agree with, ethical investing is the solution.
This kind of investing is easy and lucrative because of the myriad of sustainable mutual funds and impact portfolios that robo-advisers offer. The aim of ethical investing is to support businesses and industries that have a positive impact on society, like those producing clean or sustainable energy.
With the rise in ESG funds, ethical investments have increased significantly. However, what is ethical varies from one individual to another. What you consider ethical may not be to someone else. So, you need to look beyond the product to the business practices and mission of a company to ensure it aligns with your personal moral compass. Here is what you need to learn about ethical investing.
What Ethical Investing Entails
Ethical investing does not differ much from sustainable and socially responsible investing. All three seek to find investments that positively impact the community and environment. If you want to begin ethical investing, you will be pleased to discover that it is not a complicated process.
The first thing to learn about ethical investing is the values that resonate with you. This can be values like human rights, caring for the environment, and more. Identifying your values and ethics code makes it easy to sift through various investments to find the most suitable ones for your portfolio.
For instance, if you care about human rights and equality, you can choose a company with women leaders or one that treats and remunerates its workers fairly. Also, you can invest in green energy companies if you care about the environment. With your values in place, choosing an investment portfolio is easy.
Is Ethical Investing Profitable?
There have been concerns over the profitability of ethical investments. Research shows that ethical investments most often outperform traditional funds. The idea is that companies that are mindful of the environment and treat employees fairly may have better management and fewer scandals, which can improve their material benefit.
For instance, a company that addresses ESG concerns can avoid lawsuits or fines for sexual assault, improper toxic waste disposal, fraud, and harassment charges because they already have policies to prevent such issues.
In addition, ethical investments may have lower market risk levels than traditional funds. This means that they can perform even in volatile markets.
How to Build an Ethical Portfolio
Once you identify your values, you need to decide how involved you want to be. So, you can choose to create a portfolio on your own or ask for professional help. Doing it yourself ensures only the companies your values align with are included in the portfolio. However, researching different companies is time-consuming. You can ask for help from expert fund managers. They provide a host of funds to invest in, although your control is limited.
Conclusion
Ethical investing is the ideal investment vehicle for ethical investors. So, identify your values and research companies with the same values. That is the first thing to learn about ethical investing.
