Investments considered ethical usually uphold high standards regarding how they treat their employees, the products they produce, and the measures they implement to confront the effect of climate change. Therefore, ethical investing can be seen as investing according to one’s moral values.
Here moral principles are the primary filter when selecting the type of investments to venture into. To determine the ethicality of investing, certain basic principles of investing will help to venture into an ethical fund, company, or even an actual investment.
Below are things to consider when thinking about the ethicality of investing.
(ESG) Environmental, Social, And Governance Investing
In the past, researchers centered on the company’s financial goals; however, today, that is different. Researchers must consider environmental, social, and governance issues to assess a company’s performance. Therefore, a company’s ESG rating is based on the three key considerations above.
The company that, for instance, enacts gender equality would have a high rating in the social category. At the same time, those that have enhanced net zero carbon emission will have a higher rating in the environmental category. You can also consider the ethicality of investing in the governance perception.
Socially Responsible Investing
In socially responsible investing, an investor usually avoids investing in companies that take part or profit from harmful activities. Therefore, the ethicality of this investment can be defined from the perception of how the company adheres to labor standards or sells harmful products. Additionally, in socially responsible investing, one takes a more targeted approach to invest in companies that align with one’s beliefs and views.
Sustainable investing can also be placed in the same category as socially responsible investing. Some investors also refer to this kind of investing as green investment, and their ethicality is defined by the business practices they undertake to preserve and protect the environment.
A company that is considered to be sustainable is more likely to be engaging in activities such as harnessing alternative sources of energy, proper waste management, and incorporating recyclable materials in their production.
Impact investing overlaps several major types of ethical investing; as the name suggests, companies in this category aim to positively impact society and the planet. Therefore, impact investing includes socially responsible investments, ESG-focused, and sustainable companies. Some impact investing companies include healthcare companies, renewable energy generating companies, and educational institutions.
Moral investing is the mainstream of ethical investing; here, you can define the ethicality of investing by choosing the investment stocks according to your moral codes. You can also invest through brokerage firms that match your moral codes or seek financial advisors or fund managers that support your moral beliefs. Generally, in moral investing, investors avoid companies that partake in practices they don’t agree with.
Ethical investing is an investment strategy whereby investors only focus on investments that match their moral principles and beliefs. When considering the ethicality of investing, the various things to consider are; ESG investing, socially responsible investing, impact investing, sustainable investing, and moral investing.