The last three years have been difficult, and with persistent tensions and market volatility, securing your place in the financial sector is challenging. So, inevitably, many investors have begun to wonder where their money is going and how they can help shape a better world.
With the prevalence of a variety of social and environmental issues, more investors are beginning to demand that the firms in which they invest be more socially and environmentally responsible. This includes how they treat their employees, assessing the environmental impacts of their operations, and refraining from unethical business activities.
Navigating the financial world may be daunting, especially if you want to invest but are concerned about your money going to businesses with which you disagree. If this is the case, an ethical investment might be the solution.
What is Ethical Investing?
When investing ethically, investors tend to make investments aligned to their personal ethical code. A primary goal of ethical investing is to make a profit while simultaneously supporting industries working to improve the world. There are now more ethical investments than ever before, thanks to the growth of ESG, SRI, and impact funds.
Because one person’s definition of ethical behaviour may differ from another’s, it is critical to scrutinise the specifics of ethical investments to verify that they are consistent with the desired outcome.
People who invest money in the stock market do so with the knowledge that their investment may lead to both financial gains and beneficial social change. Investment screening may be used to identify corporations and organisations that do not satisfy investors’ expectations and instead allocate money to those who do.
Positive and Negative Investment Screening
Positive and negative investment screening is used to differentiate between various companies based on how restricted investors want their investments to be. Positive screening involves identifying a particular issue an investor believes can have a positive impact and investing in this area accordingly. These areas may include investing in companies creating products to combat climate change or companies that promote positive working standards and environments.
Negative screening, on the other hand, seeks to eliminate firms that perform poorly on environmental, social, and corporate governance (ESG) criteria. This may include companies that are directly involved in the fossil fuel industry or have had controversies relating to the exploitation of their workers.
Types of Ethical Investments
Socially Responsible Investing Funds (SRI Funds)
SRI funds steer clear of potentially divisive industries, including gambling, weapons, cigarettes, alcohol, and the oil industry. When making an investment decision, the moral value of the investor is accorded considerable weight.
Environmental, Social and Governance Funds (ESG Funds)
Environmental, social and governance (ESG) funds incorporate ESG factors into the investment process, by using these factors to assess risks to the company itself. As a result, they are able to invest in sustainability while retaining the same level of returns as they would with a typical strategy.
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. As a result, impact funds are a fantastic fit for investors concerned about the world’s well-being but still desire a high rate of return.
Climate Change and Investments
Undoubtedly, some businesses are planning ahead of time and seeking to lessen their carbon impact, and increasingly take into account social issues within their workforce. Similarly, many investors want to put their money into a company leading the battle against global environmental and social challenges.
To mention a few, the following companies are leading the way in being carbon neutral, reducing environmental impact by utilising less land and meat, and using less single-use plastic:
While adjusting towards sustainability in your personal life is important, the activities of publicly listed businesses are responsible for some of humanity’s most severe environmental consequences. In other words, the money in your investment portfolio may have a more significant impact on the future of our world than you know.
Ethical investing is about matching your moral compass with your investment portfolio. So, it is essential to research and choose the right company that aligns with your principles.
If you have any queries regarding the above information, please do not hesitate to contact a specialist Accru member today.