The investment technique known as ethical investing prioritises the investor’s moral, religious and social ideals over financial gain. This is because a growing number of investors have begun to demand social responsibility from the companies they invest in, primarily because of the rise in dubious and unlawful investment arrangements.
Ethical investing entails fair labour practices, the production of healthy and beneficial goods and services, and abstaining from unethical business activities.
Investors who want to utilise their money to support good causes should consider ethical investment. Those who are interested in this type of venture have several options to choose from.
Types of Ethical Investments
Below is a list of the different types of ethical investments:
Environmental, Social and Governance Funds (ESG Funds)
ESG investment strategies target shares in businesses that follow good corporate, social and environmental practices. ESG funds consider the potential effects of environmental, social and governance factors on a company’s performance when making investment decisions.
Faith-Based Funds
Faith-based funds (aka morally or biblically responsible or faith-driven funds) only own stocks that uphold certain religious principles and values. This family of mutual funds rigorously avoids investments that do not match that category. They wouldn’t invest in
companies involved with alcohol, anti-family entertainment, gambling, tobacco, and similar potentially offensive practices.
Impact Funds
Impact investing is a term used to describe an investment approach where ethical improvements or positive results for the community and environment take precedence over fund performance or financial returns. Examples of this include investing in non- profits or businesses producing or using clean technology.
Socially Responsible Investing Funds (SRI Funds)
Socially responsible investing entails eschewing investments in contentious industries or companies that manufacture or provide addictive substances or activities or whose products or services go against social justice, sustainability, and clean technology principles. This is why SRI funds steer clear of businesses involved in gambling, guns and ammunition, tobacco, alcohol, and oil.
Pros and Cons of Ethical Investing
It’s important to know its pros and cons so you know exactly what to expect when investing ethically.
Pros:
When an ethical holding company performs well, the investor benefits financially and emotionally as the business shares their ideals.
Investments in ethical funds have a great potential to increase dramatically as more people become aware of them.
The growing relevance and popularity of ethical investing will motivate other companies to raise the bar on their ethical standards in order to attract investors.
Cons:
It takes a lot of investigation or due diligence to verify that investing in a business is in line with the investor’s values and views because it is not a passive strategy. Since ethical investment may not offer the best returns, the investor may need to forgo financial benefits to uphold their ethical philosophy.
More work and research go into finding the right investment, so ethical investing costs can be higher than conventional investments.
That being said, the number of investors who want to make a positive impact on the society and environment is expected to continue growing.
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Source: Matrix
General Advice Warning: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read the Product Disclosure Statement (PDS) before making a decision about a product.
