What exactly is ethical investing? Find out here

Ethical investing is becoming increasingly popular because it helps investors reduce environmental degradation and positively impacts society. It is a term that refers to investment strategies that seek to align the investments with social and environmental values. The goal is to invest in companies that respect human rights, animal welfare, and the environment.

There are several ways to invest ethically, such as exchange-traded funds, index funds, mutual funds, and direct ownership of stocks. Also, you could invest in investments that promote social good, that is, socially responsible or sustainable investments—for example, clean technologies, renewable energy projects, and companies that support environmental protection initiatives. So, what is ethical investing?

What is Ethical Investing?

What is ethical investing?- Ethical investing is an investment practice where someone chooses securities to invest in using their moral principles, values, or beliefs. Some people refer to it as socially conscious investing. Ethical investments bring out an investor’s personality and don’t guarantee an investment’s performance.

Ethical investors are careful not to invest in sin stocks like smoking, alcohol, gambling, or firearms. But, you should thoroughly analyze a potential investment to confirm whether its business actions align with its ethics, history, and expected performance.

So, ethical investing allows investors to choose where to invest, ensuring the company’s beliefs match their values. As a result, investors may avoid specific industries or aggressively invest in others to adhere to their ethical guidelines.

History of Ethical Investing

Most ethical investments are influenced by religion. In this case, investors avoid all operations that conflict with their religious beliefs. Among the first ethical investing records was an instance recorded in the 18th century that barred members from engaging in the slave trade.

Later, the Methodism founder, John Wesley, preached and encouraged people to avoid investing in activities that harm their neighbors. Finally, as the 20th century approached, ethical investing became popular, with most people leaning on their social views rather than religion.

Ethical investing highlights the political climate of the season and the social trends. In the 60s and 70s, people took part in ethical investing by focusing on companies that observed equality and the rights of their workers. In the 90s, investors started considering environmental problems before investing in a company.

For instance, the investors moved from fossil and coal fuel companies to those with clean and suitable energy. Today, ethical investing mainly focuses on the impact of your investments on society and the environment.

How Ethical Investing Works

After choosing a company that matches your beliefs, you need to scrutinize it further to determine whether the investment has the potential to reward you with significant returns. Also, you need to review the company’s financial status and history to ensure it is committed to its ethical beliefs.

Finding ethical investments can be made easy by going through a company’s mission statement as it portrays the company’s values. However, the company’s beliefs on paper may contradict its practices.

Advantages of Ethical Investing

1. It’s a great way to enjoy sustainable returns. Most socially responsible stocks achieve good results.

2. It allows you to de-risk your portfolio. Many investors choose ethical investing because it is essential for their survival, thanks to reduced carbon emissions. In addition, they choose ethical investing not only for sustainability but for the investment’s long-term survival.

3. It allows you to align your values. You feel good doing it as you make more money since the investment aligns with your values. Apart from making money, you will be improving society as well.

Cons of Ethical Investing

1. Limited investment options. Sometimes your return on investment can be compromised because your investment options are limited, and you may miss out on better opportunities.

2. Uncertain commercial realities. Some ethical companies have minimal potential. This is because these investments work where there is a sustainable commercial reality. This means that they may have a high potential now, but as the years progress and the demand for their products reduces, they lose their potential.

3. Higher fees. Some ethical investments charge higher fees because of their small scale.

Conclusion

Ethical investing requires thorough research to ensure the company’s ethics match the investor’s beliefs. A financial adviser is a great place to begin understanding ethical investing. However, you should never compromise your values and beliefs for money.