Ethical Investing - using your finances to make a difference
By Emmanuel Allottey
The new generation of investors are aligning their investment choices with the values stirred by social, financial and political inequities exposed around the world. Ethical investing is the practice of using personal values and ethical principles as the primary selection criteria when making an investment. Ethical investing is sometimes used interchangeably with sustainable investing, socially responsible investing, green investing, impact investing and ESG (environmental, social and governance) investing. Most of these are based on an underlying principle: creating positive change by thoughtfully and intentionally investing in companies that demonstrate ethical practices.
The attractiveness of ethical investment has to do with contributing to a cause greater than financial returns. Investment in socially responsible companies and transparent and ethical projects will translate in other businesses striving to improve their ethical practices to attract funding. Companies that share ethical principles are expected to treat their employees well, be considerate on their environmental footprint, with better governance which translates into better company performance.
Despite the clear benefits, ethical investors must take a number of other factors into consideration. Many companies through marketing and expert public relations may appear to be socially responsible but are not. It is time intensive researching potential investments thoroughly to ensure they align with your values. This can become quite complex if every investment in your portfolio must meet certain benchmarks.
While no investment is guaranteed, the performance of ethical funds has been shown to be similar to the performance of traditional funds. In addition to analysing investments using ethical standards, the historical, current, and projected financial performance of the investment should be dissected. This will determine whether the investment is sound and has the potential to reap significant returns. There are various funds available on the stock market that offer sustainable investments (e.g. shares, bonds, and thematic funds) and they’re a great option for investing in a large array of ethical organisations.
One of the best measures of an ethical investment fund is its alignment with the UN’s 17 Sustainable Development Goals (SDGs). The SDGs include taking action on climate change, reducing inequality, and responsible consumption and production.
If you value investments that make a difference more than the prospect of making money at any price, you might be willing to sacrifice some returns to invest your money in companies that you believe in. Speak to a professional financial advisor and consider ethical investing today!