Creating an ethical portfolio can seem like a minefield. With so many choices, it’s difficult to know where to begin when it comes to investing ethically. Do you go for one of the growing number of green startups on the market? Or perhaps investment trusts, which tend to have smaller asset sizes and focus on specialist areas, are more your thing?
Because there are countless ways to invest responsibly; there are numerous different exchange-traded funds (ETFs), mutual funds, and stocks that focus on sustainability or specific industries like healthcare or technology.
What’s more, with so many different types of investments available, do you invest directly into a company? If so, what should be your minimum acceptable standard for corporate social responsibility standards? And how do you identify companies that meet those standards?
There are so many questions – and thankfully we have some answers! In this ultimate guide to ethical investing, we explore everything you need to know about this alternative investment strategy.
Understanding Ethical Investing
Ethical investing is steadily becoming a mainstream investment strategy; the impact economy is expected to hit $2.5 trillion by 2025.
Ethical investing is a broad term used to describe the process of selecting investments that meet certain social, environmental, and governance standards. This is in contrast to conventional investments, which are selected based on their potential to maximize profit.
An investor might choose to avoid investing in companies that have certain products or/and services, or might screen out certain countries based on human rights violations, for example.
Why Should You Care About Ethics?
Ethical investing is about a lot more than just profit – though it does have a major role to play in growing your investment portfolio. With the threat of climate change increasing, the rise of populism, and the implementation of protectionist economic policies, the global economy is becoming more uncertain than ever before.
With that said, ethical investing has the potential to boost your investment portfolio while helping you prepare for a more uncertain future.
A recent study found that the most sustainable funds were 4% more profitable than the least sustainable funds. At first glance, this may not seem like a significant difference. But, over a long period of time, the difference could be significant.
Moreover, with the ethical funds likely to be better-positioned to deal with a more uncertain future, this could make all the difference.
Tips for Ethical Investment
When selecting an investment strategy, it’s important to understand the potential risks as well as the potential rewards of each approach. Ethical investing means that you should research the companies that you invest in more thoroughly than you would for a typical portfolio.
In addition, you may want to consider investing in a range of companies that represent a variety of industries. This way, your portfolio is less likely to be impacted by the problems of any single company.
The Bottom Line
As you look to grow your money and meet your financial goals, it’s important to think about how your investments could impact the world around you.
There are many different types of ethical investment strategies, and the best approach is different for each individual investor. As such, it is important to research the companies that you invest in more thoroughly than you would for a typical portfolio.
