While investing your hard-earned money in stocks, shares and funds is a smart way to improve upon your own finances, you also have the power to drive positive change through the investment choices you make. Ethical investing has grown in popularity in the last few years, with more and more of us looking to support good causes in addition to making a worthwhile financial return.
This trend looks set to continue into 2021, with research from ethical bank Triodos suggesting that more than a fifth of investors are exploring ethical investments in the wake of the COVID-19 pandemic. This guide will explore how to ethically invest your money in 2021, as well as what the future holds for the sector.
Do Your Homework
When looking to ethically invest your money, you should first consider whether the investment is right for you financially. Investing can be a risk, so it’s important to do your research before committing to anything, especially if you’re unsure of the potential return. There are many ways in which to make ethical investments, including stocks and shares, ISAs, general investment accounts and pension funds.
Your confidence in choosing the right investments will depend greatly on your experience. If you’re looking to make your first investment, or you’re relatively inexperienced in the field, consider seeking financial advice so that you can be sure that you’re making well-informed decisions. Visit financial planners like Prosperity Wealth for more information on how to receive bespoke financial advice.
Choosing The Right Investment
Once you’ve identified the investments that are right for you financially, you can then start to think about the kind of ethical impact you want to make. The term ‘ethical investing’ covers many environmental, social, moral and religious issues, ranging from climate change and animal testing to gambling and workers’ rights. You should look to support issues that are aligned with your own moral values and ensure that in doing so, you’re not neglecting or adding to other negative issues, such as carbon emissions through increased manufacturing.
It’s also important to research the philosophies and policies behind the funds in which you’re looking to invest. There should be transparency on behalf of the fund, which should tell you how the environmental and social benefits will come into effect, as well as how they are supported by the investment process. Some funds may present such benefits as additional or extra rather than integral to the fund’s approach, which could be interpreted as an attempt at ‘greenwashing’, i.e., an ethical box-ticking exercise instead of a genuine effort to tackle the highlighted issues.
Most socially responsible funds will be signatories to internationally-recognised frameworks, such as the United Nations’ Principles for Responsible Investment. Some funds may have also made pledges that are more specific to a particular cause, which shows a public commitment to tackling the issues at the heart of their approach.
Making Your Investment
Upon completing your research into potential investments – both from a financial and ethical perspective – you should finalise the details of your investment plan and put it into action. It’s important to regularly monitor the progress of your investments, especially if you’ve selected your own, in which case experts suggest they should be reviewed every quarter.
Another approach to selecting your own portfolio is to invest via actively managed funds, in which an investment manager will look to screen out unethical companies, or find those that are the most socially responsible, and look to combine those findings with a worthwhile return for you as the investor. Exchange-traded funds, or ETFs, look to achieve the same outcome without an investment manager (meaning they are often the cheaper option), instead tracking the performance of a stock market index and using filters to find ethically-focused investments.
The Future of Ethical Investing
Continued growth is expected for ethical investing in the coming years, with more people making environmental, social and corporate governance-focused (ESG) investments than ever before. Experts suggest that this growth will be largely driven by younger people – although not exclusively – as the same attitudes we have towards the brands that we buy from (pro workers’ rights, anti-animal testing, etc) are now also being applied to the investments we make.
Factors like diversity and inclusion will also become more essential in our ethical investment decision-making, especially following the momentum gained by the Black Lives Matter campaign in the last year. Ethical investments in general are likely to become more mainstream and the sector will continue to evolve as a result.
Sources
- ‘10 ways to be more ethical with your money’, Wise Living, https://wiselivingmagazine.co.uk/money/money-advice/10-ways-to-be-more-ethical-with-your-money/
- Homepage, Prosperity Wealth, https://www.prosperitywealth.com/
- ‘What are the best ethical funds in 2020?’, Moneyfacts, https://moneyfacts.co.uk/star-ratings/what-are-the-best-ethical-funds-in-2021/
- ‘Guide to ethical investing’, The Times, https://www.thetimes.co.uk/money-mentor/guide/guide-to-ethical-investing/#1
- ‘Guide to investment trends 2021’, The Times, https://www.thetimes.co.uk/money-mentor/guide/guide-investment-trends/
