What is Ethical Investing and is it Perfect?
Ethical investing is investing in projects that sit in line with your values and principles both socially, morally or religiously. The only person who can determine if an investment is ethical is the person investing. One way for a professional investor to do this is to integrate environmental, social and governance (ESG) into their investment strategy, possibly focusing on businesses and projects that consider some of the following, climate change, human rights and the integration and advancement of women or minorities. The more investors look to invest in corporate social responsibility, the more businesses will ensure they deliver those same principles in a more transparent way.
This type of investment maybe restricting for an investor who may have to avoid businesses who are seen to be questionable e.g., businesses in the alcohol or in the fire arms sectors, or involved in deforestation processes however, they can focus more on those that demonstrate ethical practices such as donating to charities, reducing their carbon waste, giving back to the communities, and generating positive social outcomes. There may need to be some compromise and engagement with the ‘Bad’ companies, so change can be effected from within. Even emerging new technology companies may source equipment and parts from places such as China. An open mind is needed! There are many opportunities and although it isn’t perfect, focusing on what good a company is doing can be just as important as helping to influence what it isn’t doing. (Sources: marketbeat.com ; What is Ethical Investment and Why Do it by Michael Allen wealthsimple.com ; 5 definitions of ethical investing by Cecile Boyer wealthily.com)
Ethical investment is by no means perfect but is a path to challenging the ethics of a company. The more that money is invested in ethical projects and companies, the more that companies will begin to work towards improving their corporate, social responsibility to attract funds. Over the long term, investors in companies with high ESG scores may well discover their Return on Investment (ROI) far outweighs those of larger corporates with lower scores. (Sources: marketbeat.com ; What is Ethical Investment and Why Do it by Michael Allen wealthsimple.com ; 5 definitions of ethical investing by Cecile Boyer wealthily.com)
We can all play our part from the most wealthy seasoned investor to the ordinary person on the street through their pensions, by investing in pension funds that prioritise ESG. People are now more than ever, in the mood for change and to change, reducing their intake of meat, recycling waste and changing travel habits such as cycling in place of driving.
“Brits now have a staggering £3 trillion invested in pension funds – but few have any idea about where or how this money is being used. Research shows that 70% of pension savers are concerned about the ethics of their investments, but that only 20% of investments are confirmed to be ‘responsible and impactful’.”(Source: https://www.unbiased.co.uk/news/financial-adviser/pensions-actually-richard-curtis-launches-drive-for-ethical-fund-investment)
Through our pensions more money can be directed to where it will do the most good. Money will still be invested in some of the less well behaved industries but through shareholder voting rights, can be used to influence change for the better . It’s therefore important we educate ourselves in the practices of our pension funds and gain better control over where the money is to be invested. Ethical Investment may not yet be perfect in our lifetime but we can all use our pensions to work towards perfection for future generations.
(Photograph by Ricardo Esquivel)