What is ethical investment?

Photo by Sam Truong Dan on Unsplash

The 21st century digital age is one of choice. For practically every decision we make, whether it’s as mundane as ordering a takeaway or as life-changing as getting married, there are now far more choices laid out before us than there were 20 or 30 years ago.

The principle applies to investments as much as it does to anything else. Today, we can still walk into a bank, building society or stockbroker’s office if we want to, but where these had more or less cornered the market in the 20th century, there are now a range of additional suppliers, particularly online.

But as well as a greater choice on where to go for our investment products, there is also a wider range of products themselves. People have become increasingly savvy in their purchasing decisions over the past couple of decades, and today, they want more than just the best financial deal. Consumers are increasingly aware of the social and ethical aspects to their purchase decisions, and this is where ethical investing takes centre stage.

Ethical investing

Ethical investors use their ethical principles as the guiding factor in selecting the investments they choose to add to their portfolio. It is no different to those who choose to only purchase fairtrade or organically produced products.

Ethical investing depends on an investor’s views. For example, some might choose to actively select companies that are aligned with their own beliefs, be they environmental, political or religious. Others might specifically avoid certain sectors or industries that do not meet their own ethical views, for example those involved in gambling, firearms or alcohol.

Photo by Sharon McCutcheon on Unsplash

Ethical investment funds

If the idea of analysing tens or hundreds of stocks to decide whether they are aligned with your ethical views sounds a little impractical, don’t worry. A growing number of financial service providers offer ethical investment funds, in which they do all the work for you. Of course, this means you need to have a good understanding of the ethical principles that the fund manager is using in order to be sure their interpretation of “ethical” is the same as yours, but this is only something you need to do once.

Often, you will find that more than one ethical plan is offered, so you can select the one that is most closely aligned with your own personal principles. The funds only work with signatories to the Principles for Responsible Investment (PRI), and an ongoing process of screening and auditing takes place to ensure that standards are maintained.

Things to check

Clearly, funds like these take the legwork out of ethical investment and reduce the amount of research you need to do. But if you decide to break away and go it alone, a look at a company’s corporate website often gives good clues as to its ethical principles.

Specifically, look for its code of ethics, code of conduct and corporate social responsibility policies. Also, be on the lookout for news that the company really practices what it preaches through proactive ethical activities. After all, it is worth remembering that even Enron had a code of ethics that was 63 pages long!

Disclosure – this is a collaborative post