Ethical investing involves much more than most people realize. It can offer numerous opportunities and benefits for individual investors and those preparing for retirement.
So then, what does it mean to invest ethically?
The basics investment process
In order to truly understand your equity portfolio and make the correct selections, it’s important to comprehend the drivers behind the businesses you’re investing in.
Who is on the management team and what is their track record, for example? What types of products or services does the business offer and what is their target market? Which raw materials or talent sets do they require in order to succeed, and how do they go about sourcing these? How sustainable is the company and how does it treat its people and its local communities?
Ethical Investment plan
These are the same questions that should be asked when an investor is putting together an ethical investment plan. Investing ethically, in a nutshell, is all about understanding exactly what it is that your money is funding, then ensuring the funded businesses will not have a negative impact on society and on the environment.
Differentiating between ethical and other investments
There is no absolute rule as to what is and is not an ethical investment. It very much depends on individual beliefs – which could be to do with religious belief, political leanings, environmental concerns or any one of many other variables – as well as the effects of location and time. A person living in a small town that is receiving much-needed mining income, for example, will have a different opinion to the city-dwelling environmentalist. During a time of war or civil unrest, people in certain territories around the globe will think differently about businesses involved in weapons manufacture. And while some feel uneasy about companies involved in alcohol marketing and production, others admire the quality of their brands and products and their promotion of responsible drinking.
In other words, ethical investment allows individuals to put their money behind businesses that match their own belief systems. It doesn’t necessarily mean the chosen organisations will outperform ones that are considered non-ethical. But it does mean greater satisfaction with, and likely more personal interest in, the set of businesses within the portfolio.
Balancing investment performance with social responsibility
In order to balance social responsibility with investment returns, an investor must look into the business’s sustainability and HR record. They must get to know the products and services and find out what the business does to make these offerings a reality. In other words, they must develop a far more intimate understanding of the organisation than they would if they simply purchased shares thanks to a company’s growth record. Such a thorough investigation is a powerful exercise and one that is likely to pay dividends, in more ways than one, during the lifetime of the investment.
Speaking to fund managers
An investor may also choose to look into various funds that make it their business to buy shares only in ethical organisations, although you’ll want to check carefully to make sure your philosophies match up. Such funds may have investment policies that involve strict and pure approaches to ethical investing, while other may simply have loose guidelines that exclude certain types of organisations.
If the many positives of ethical investing are of interest, bring up the topic during your next meeting with your financial planner. They can help you to understand your current levels of ethically correct investment exposure and recommend strategies and choices for those that would like a greater comprehension of what exactly their money is supporting.