ethical investing

What is Ethical investing, and how to get started

12 March 2023 | 5 Min Read

Ethical investing is a strategy that invests in companies with social and environmental policies aligned with your personal values. This type of investing has gained momentum recently and offers investors an opportunity to make a meaningful difference in society.

However, this approach can be costly as extensive research must be done to find investments aligned with your primary goal. Personally avoiding investing in less sustainable companies doesn’t mean they’ll continue to prosper and gather investment from others, but we’re here to focus on our personal choices. 

Table of Contents

    What is ethical investing?

    Ethical investing is an investment strategy that seeks to align your portfolio's investments with your values and beliefs. Whether you want to create a sustainable competitive advantage, invest in companies that prioritize social responsibility or support environmental, social and governance (ESG) initiatives, ethical investing provides you with the chance to effect positive changes while simultaneously increasing your wealth.

    Ethical investments come in various forms, such as mutual funds, exchange traded funds (ETFs) and individual stocks. Each has its own advantages and potential drawbacks.

    No matter the type, ethical funds typically use ESG investing factors - environmental, social and corporate governance - to grade individual assets along an ethical curve. This makes it simpler to find ethical investments that align with your financial goals.
    Some uniquely angled funds will have higher cost ratios and fees, including sustainable focussed funds. However, be sure to read through the fund's prospectus for detailed information regarding its holdings and costs.

    You can use ethical funds to diversify your portfolio. The drawback is, that it may take more time, research and resources to curate an ethical portfolio than a traditional one.

    Some ethical funds have filters that exclude certain stocks, such as those selling tobacco, alcohol or firearms. Others focus on a specific theme like renewable energy or women in leadership. Impact funds also strive to deliver an immediate social or environmental benefit.

    What is ESG?

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    Where to ethically invest

    Ethical investments are a popular option for those who want to contribute to the betterment of the world while reaping financial rewards. There are various ways to invest ethically, such as mutual funds, stocks and exchange-traded funds (ETFs).

    Ethical investment funds typically perform negative screenings to exclude companies engaged in harmful activities. These could include tobacco, weapons, gambling, and adult entertainment venues. On the other hand, they also include those which benefit from environmental causes and provide excellent treatment for their employees. 

    Another type of ethical investing is sustainable investing, which invests in companies that promote environmental and societal benefits. These funds often screen out companies engaged in harmful practices and some may even completely avoid them.
    Overall, the aim is to cut out the negative impact names, and investing in the net-positive companies!

    Ethical investors will not only avoid bad company practices, but they will also consider companies that strive to make the world a better place. To do this, they should examine their social responsibility practices, waste production levels, and sustainability initiatives.

    Finding an ethical investment fund requires some research. Check the fund's holdings and expense ratio to confirm that it aligns with your beliefs and objectives.

    You can search for ethical investing companies on platforms such as OpenInvest or Morningstar. These services allow you to build ethical portfolios based on your values and beliefs.

    Ethical investments are becoming more and more popular, as more people become concerned with their impact on the environment and potential outcomes. Furthermore, these investments tend to be cheaper than their conventional counterparts due to typically lower account minimums and associated fees.

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    How ethical investments perform

    Over the last decade, some of these investments have outperformed conventional funds due to investors' increased awareness of environmental, social and governance issues that impact companies, as well as their capacity for earning a return on their investment. The long term thinking by these and funds and investors getting into the sustainable trend earlier is paying dividends (literally)!

    The future of ethical investing

    Ethical investing is a trend that's on the rise. It allows investors to make money while also contributing to society and the environment. Unlike passive investing, this approach requires active research in order to find investments that align with an investor's main goals.

    It can be an advantageous strategy, but it could prove costly and challenging to locate companies with ethical practices. Thus, research is key in order to be certain you make informed decisions for your future financial success.

    This style of investing avoids industries with negative impacts on society and the environment, like tobacco or oil. It also supports sustainable businesses dedicated to long-term growth with a positive influence on society and the planet.

    Ethical investing encompasses environmental, social and governance (ESG) investing as well as impact investing. While ESG is less stringent, it still considers a company's impact on society and the environment. Furthermore, it promotes sustainable business practices like increasing recycling rates and saving water.

    These styles of investing can be utilized as part of a responsible investment portfolio or to make an individual asset more responsible for the environment and society. When combined with stewardship initiatives, signatories are encouraged to incorporate these principles into their investments.

    Ethical investing has a bright future and will only become more popular as more people become aware of its benefits. Investing in ethically run companies not only yields higher returns, but it also creates an improved environment for generations to come.

    Ethical investing platforms

    Ethical investing platforms make it simple to reach your financial objectives while simultaneously making a positive contribution to society. These companies provide various investment options such as socially responsible mutual funds, green mutual funds ETFs.
    Nutmeg provides a Socially Responsible Investment portfolio that avoids ETFs associated with controversial industries and instead emphasizes leaders fostering positive social and environmental effects.

    They provide you with a range of risk levels, from cautious to adventurous. The lower risk levels tend to have more conservative asset allocation and focus on bonds and fixed income investments.

    Some ethical investing apps, like OpenInvest, are public benefit corporations that strive to make a positive impact on society. They provide typical robo-advisor features like tax loss harvesting and a flat management fee.

    Another viable option is Ellevest, an app created by women for women. Their social investing section assists you in discovering companies dedicated to gender equality and environmental sustainability, plus they offer a specialized Women's ISA.
    Other ethical investing apps worth noting include Wealthify, OpenInvest and FLIT Invest. Each has a selection of low-fee ETFs regularly monitored for ethics compliance; making them ideal options for investors seeking to be environmentally conscious, yet still make money.

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