What Is Ethical Investing?

July 13, 2021

The financial world is awash with buzzwords and catchphrases that can make it hard to work through the chatter and jargon. One such catchphrase at the moment that has attracted a lot of attention from investors is the idea of ethical investing. But what exactly is it? And, is it a profitable investment strategy? Here, we look to explore the idea of ethical investing, why it is important and, ultimately, how to do it. 

What Does Investing Ethically Mean? 

Investing ethically is the idea of only investing in companies and products where the underlying principles of the business support certain ideas. Those ideas need to be ethically or morally correct in the eyes of the investor. It is important to remember what is ethical to one investor, may not be to another. However, common themes do crop up in ethical investing - like supporting companies with green or sustainable initiatives towards the environment, upstanding and respectful hiring policies towards minority groups or a philanthropic approach to where it channels its profits. 

How To Invest Ethically

Investing ethically is not as difficult as you may originally think. In fact, it could be that you do it to a certain degree already. Here are some options available to you to help structure your portfolio as an ethically charged one. 

Stock Pick

One of the reasons that you may already be investing ethically is through stock picking. Many good stocks are backed up with good corporate governance, which is now more frequently including how a company approaches its attitude to climate change and place in society. You can therefore further enhance this by researching companies that look like good potential investments and then ensuring they also meet your ethical criteria within its governance. 

Also Read: Why choosing the right broker is essential to portfolio management success

ESG Funds

There are a number of funds already set up that only invest in ethically run companies. As a result, it is possible to buy units in them and therefore hit your ethical investment target from the outset. Some ESG funds will focus on different ethical notions, however, so it is still important to research what funds you do invest in to ensure they meet your own wants. For example, some may have a heavy emphasis on companies with a good carbon footprint, others will have a weighting towards companies that try to have positive effects on the community around it. 

Underlying Companies

You may buy financial products from banks like savings accounts or bonds. As a result, you can pick what provider you do business with on your own specific ethical checklist. What that checklist consists of is down to you, but if a bank meets all those points, then you will be able to buy into it with peace of mind. 

How To Invest Ethically

Investing ethically is not as difficult as you may originally think. In fact, it could be that you do it to a certain degree already. Above are some options available to you to help structure your portfolio as an ethically charged one. Investing ethically is a means by which investors and shareholders can assert their power on companies as to how they conduct themselves. If investors only choose to invest in companies with good and robust corporate governance that includes how it chooses to limit its carbon footprint, amongst many other ethical issues, then those companies will be consequently forced to do business in certain ways.



Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

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