Ethical investments – why invest?
For those who want to invest their money ethically, there are many more options than there used to be, and a lot of these options are producing healthy returns. In many cases, ethical funds have outperformed their mainstream counterparts, which shows that profit and principles can go hand in hand.
The natural state of mind for anyone who wants to add an ethical dimension to their financial dealings is to assume that whatever they do is unlikely to make any difference. That may be true that your individual action won’t change anything by itself. Finding an ethical investment fund won’t feed millions of starving people, nor will your ethical investment affect climate change.
There are however signs that the world is beginning to sit up and take notice of the social and environmental issues that have always haunted us but largely been ignored for decades. It looks like we are on the verge of becoming socially responsible. About time.
Related reading: The importance of ethical investing
The different types of ethical investments
As awareness grows about the impact of investment decisions on the environment, society, and governance, ethical investments have surged in popularity. These investments look to generate financial returns but also to positive social and environmental outcomes.
Below, is a short overview of the different types of ethical investments:
- Socially Responsible Investing (SRI): Excludes companies with negative impacts, preferring those adhering to ethical standards in their operations
- ESG Investing: Focuses on companies excelling in environmental care, social justice, and strong governance, supporting sustainable development
- Impact Investing: Directs funds to projects or companies making measurable, positive social or environmental impacts, alongside financial returns
- Green Bonds: Aimed at financing environmental projects, these bonds support initiatives for climate change mitigation and sustainability
- Community Investing: Invests in underserved communities, offering access to financial services and fostering economic development and job creation
- Thematic Investing: Targets investments in future trends like clean energy and sustainable agriculture, based on shifting societal norms
As you can see, there is a range of options available for those seeking to invest ethically and make a difference to the world we live in.
Five reasons to invest ethically
In the next section of this guide to ethical investing. we focus on five key reasons to take this approach.
They are:
- You can have your say
- It makes good investment sense
- You can make a difference
- You have lots of options
- You can get good returns
Let’s look at each in more detail.
1. You can have your say
By investing ethically, you can have your say in the issues that matter to you. We have all seen what irresponsible company behaviour can do to us personally, to our communities, markets and environment. Through these vehicles, you now have a powerful way to have your say in these matters. Today’s variety of values-based investment funds means you can choose to invest in companies that are committed to doing what is right for society and the environment.
2. It makes good investment sense
Investing ethically doesn’t mean you have to compromise on returns. Quite the opposite. Companies recognise that contributing positively to employees, the community, and society means that they will be better placed for future growth. Conversely, companies that pay little or no regard to their behaviour are at risk of harming their reputation and ability to generate long-term investor returns.
3. You can make a difference
Many people today are investors through contracts such as pensions or lump sum investments such as ISAs. But how many of us know how and where our money is being invested? Do we care? Socially responsible investing allows you to invest responsibly, without compromising your beliefs and principles. The more of us do this, the bigger the impact.
4. You have lots of options
Today, there is lots of choice available when it comes to finding a fund that follows values-based criteria. Some are called ethical or green funds whilst others are classified as socially responsible investments (SRI) or sustainable funds. Some screen companies out based on specified criteria whilst others use set criteria screen companies in. There are managed funds and there are low cost trackers. All ethical funds are completely transparent so it is easy to see which companies they are investing in.
5. You can get good returns
Generally speaking, ethical investment funds aim to maximise long term returns balanced with concern and respect for wider social issues. In general, companies that go about things the right way are more sustainable. That reads to me as being in a positive place to do well and be profitable over the long term. What could possibly be better than getting a good return whilst having a clean conscience?
Ethical investments – the tide is turning
An increase in demand for ethical funds from 2008 to 2017 of 500 percent shows that confidence is growing in this sector. If this trend continues, ethical investing could soon become the mainstream. The tide is turning and we can all make a difference.
