Ethical investment is a market segment that has become increasingly popular in recent years and is not going to go away any time soon. Many people, especially millennials, are now looking at the social impact of their investments and making sure they support causes they believe in. After all, there’s more to life than money – right?
According to research by the Network for Sustainable Financial Markets and Principles for Responsible Investors, there was an almost 50% increase in SRI assets between 2014 and 2015.
So, ethical investing is clearly catching on. But what does it all mean?
Ethical Investing Explained
In a nutshell, building an ethical portfolio involves making investments that meet certain social or environmental criteria. In other words, these are investments that are intended to have a positive impact on the world.
It focuses on companies that meet standards for being ethical, fair, and sustainable, especially with the modern consumer placing greater emphasis on issues such as climate change, animal welfare, anti-corruption, and diversity.
A lot of people shy away from this type of investment because they think it’s too complicated or comes with too much red tape. But as long as you’re willing to spend some time learning about it, you can implement an ethical investment strategy quite easily.
Continue reading for tips on how you can do so:
1. Know What Ethical Investing Means To You
Before diving into the nitty-gritty of investment, you must first work out what ethical investing means to you. Ask yourself:
- What do you consider to be an ethical investment?
- What issues do you want to focus on and what’s your risk tolerance?
- Are you comfortable with more volatile investments that might rise and fall more often?
- How much are you willing to invest and is it for the short- or long-term?
- Do you have other assets, such as a pension, that you’re already investing in?
- Do you have any special circumstances that may affect your investment decisions such as saving for a special event like a house or a child’s future education?
2. Research Which Companies Are In Line With Your Values
Now that you’ve worked out what ethical investing means to you, it’s time to do a bit of research. There are a number of resources you can use to find companies that are aligned with your values.
They include websites and apps such as GoodInvestment, Ethical Investment, and Sustainalytics. There are also several databases that you can use to help you research companies, including the Corporate Responsibility Magazine Index, the Dow Jones Sustainability Indices, the Ethical Investment Research Service, and the FTSE4Good Index.
If you’re interested in a specific cause, there may be magazines and journals published by nonprofit organizations that can help you with your research on how to go about ethical investing.
3. Consider the Reputation of these Companies
The next step is to see what reputation these companies have worldwide. You don’t want to invest in companies that have a bad name. You want to invest in companies with a good name and are widely respected.
If you delve into these companies’ history, you can learn about the things they’ve done in the past.
- Who are the CEOs of these companies and are they people you admire?
- What is their reputation and what’s the company culture like?
- Are their customers and employees happy? – Are they a diverse range of people with different ethnicities, religions, and cultures?
- What organizations do they work with?
4. Think About The Bigger Picture
As you’re doing your research, think about the bigger picture. What kind of impact will these companies have on the world? Are they creating value for customers?
You’ll find that some industries are better to invest in than others – such as healthcare, education, and technology. All of these industries are expected to grow in the coming years, which means a good investment in these sectors could reap big rewards.
If you’re passionate about the healthcare sector, for example, you want to make sure you’re not investing in companies that put people in hospitals such as tobacco products.
5. Diversification Is Key
While it’s important to be ethical in your investment approach, it’s also important to remember that no one investment will be perfect. For example, if you invest in a company that sells vegan ice creams, and then sales of those products are slow, there’s a chance that the company isn’t as profitable, which will affect the value of your investment.
For this reason, it’s important to diversify your portfolio. Don’t put all your eggs in one basket. Instead, spread your investments across several different companies and asset types. However, this does not mean that if one company has a bad year, it will affect your entire portfolio.
6. Stay Vigilant
Finally, you need to stay vigilant even if you do your due diligence and invest in companies that reflect your values and represent your interests. Stay up to date on the latest news and happenings related to these companies.
If you notice that a company is making changes to its strategy or products that don’t align with your values, you can contact the company and let them know. You can also vote with your dollars and change your investment. If a company does not uphold the values you want to support, then you might want to consider your investment.
To Sum It Up
Ethical investing is a growing trend and one that will likely only become more prevalent in the future. Many investors are not only focusing on monetary return on investment (ROI), but also on opportunities that generate both financial and social returns.
This demand for social impact has spurred the launch of new funds, such as dedicated impact-investing vehicles, hybrid asset management firms, and market-neutral ESG products.
So, whether you’re new to investing or just new to this kind of investing, the tips listed above should help you get started on investing in a way that aligns with your values.