Ethical investing, also known as impact investing, is gaining traction regarding investment strategies. The growth is fueled by factors such as the high demand for ethical investment products. However, this investment strategy has been around for a long but with minority societies and religious communities. The investment often concentrates on methods and approaches to facilitate integration and inclusion.
As a result, the investment operations positively impact society and the environment, and the investment benefits both the larger community and the investor.
To do this, an investor must align ethics and investments gain.
How Ethical Investing Works
All ethical investments focus on ensuring that the primary filter when choosing an investment opportunity is based on one’s ethics and principles. However, different people have different moral values. Therefore, what you consider ethical may be regarded as unethical by other people. In that case, the golden rule helps distinguish between what is ethical and unethical about investments. The rule states that we should do to others what we want them to do to us.
In determining whether an investment opportunity is ethical, there must be transparency in the companies you want to invest in; therefore, due diligence is required before you spend capital. Also, in assessing whether a fund is ethical, you must check its impact on the environment, society and governance.
Environmental Considerations
In order to preserve the environment, you need to balance ethics and investments gain. An ethical investor has to consider the impact that the investment has on various environmental factors to decide whether to include it in the portfolio or not.
These factors include pollution, climate, waste disposal methods, energy usage, water stress, conservation, use of renewable energy, and ecological and carbon footprints. You also need to consider the investment’s impact on local economic policies.
Social Considerations
To balance ethics and investments, you must consider the impact of investment on social factors such as supply chain labour, data privacy and ethical sourcing. You also need to consider the effect the investment has on the safety and health of society. Consider the history of investments in that sector and their relations with the community.
Governance Considerations
Every ethical investor wants to invest in companies and opportunities with a transparent and open governance structure. A poor governance structure lacks accountability to ensure the investment is socially and environmentally responsible. An investment must have a precise accounting method and financial reporting to be ethical.
Regarding governance issues, you also need to consider the diversity within the company, board members and the shareholders, voting rights of shareholders, as well as profit sharing arrangement. Also, look at the anti-competition practices that are put in place.
Summary
Ethical investment is a strategy whereby you invest your money in such a way you don’t compromise your moral principles. Therefore, the investment is driven by positive environmental, social, and governance issues.
Therefore, an ethical investor is likely to invest in companies that deal with foods, pharmaceutical products and education. But avoid companies that deal with fossil fuels, drugs like tobacco and alcohol, gambling and others.
