Today’s generation of investors has become more discerning when it comes to picking companies and brands they want to support. While the previous generation focused merely on profit, today’s investors also look towards a company’s long-term goals and impact on the world around us.
Over the last couple of decades, the term ethical investing has been created to categorize investors that consider more than just profit when picking stocks on the stock exchange. Surprisingly, it’s a form of investing that continues to become more popular each year.
Exactly what is ethical investing and why are people so enthralled by it? Will there come a time when ethics become the baseline standards for investing?
What Is Ethical Investing?
Ethical investing at its base definition basically means investing based on a personal ethical code. This Means supporting companies that do things that are what you yourself consider as good. Ethical investing isn’t just about doing good, it’s also about supporting companies who leave a positive impact on society and the world in general.
Some of the most common reasons why people invest in companies based on ethics include a company’s support of sustainable energy, their generosity towards the poor, and even their stand against social injustices. Keep in mind that each person has their own code of ethics.
True enough, what’s ethical to you might not be ethical to others. As such, ethical investing is truly subjective in every sense. A lot of people dive into this form of investing not just because they want the best for the world, but also because companies with good practices are usually those that perform better.
As an investor, it might be wise to begin considering ethical investing on your end as well. It’s very easy to expand your portfolio with companies that fall under this category. If that’s what you are hoping to do, then we’re going to help you understand how to do it.
How To Begin Ethical Investing
Is it hard to begin ethical investing? It’s very easy to begin ethical investing and there are multiple ways to do so too. The first thing you’d want to do is look within yourself and begin to understand what is ethical for you and what your principles are. Some people value other things more than others and this is the core of your ethical investments.
Each company dabbles into their practices that help the environment or society. For example, Tesla focuses more on maintaining environmental sustainability by pushing for electric vehicles instead of traditional cars. Meanwhile, other companies focus on social corporate responsibility projects that help the less privileged.
With that in mind, you can create a portfolio of companies that fit your code of ethics. As per Qardus, you can work to build your own portfolio using company stocks that you select yourself. Alternatively, some investment firms and brokers can suggest a list of companies in the form of mutual funds that fit the bill as well.
Building a portfolio on your own is tougher but there are upsides to it. For starters, you can be more flexible with the companies you invest in. You can also choose to focus on certain companies instead of investing in more than one.
Mutual funds do have their upsides too. One is that all you need to do once agreeing to invest in them is to simply put your money into it and hope for the best. Of course, this accessibility comes at the expense of flexibility which isn’t always up everyone’s alley.
With your portfolio build, you can choose how to support the company. Would you simply invest in them? You can also support the company by buying their goods and services. How you support them completely depends on you but some people focus on investing only.
Now, ethical investing is often confused with what’s called ESG investing. Although the two share their similarities, they are different in their own ways as well.
ESG Investing vs. Ethical Investing
ESG stands for environment, social, and governance investing. Like ethical investing, ESG focuses on supporting companies that have shown to practice good and sustainable practices that benefit humanity as a whole. Both are very similar from a broad perspective but there are certain differences worth noting.
For starters, ESG is supported by a rating system. Companies will be rated on their social and environmental efforts. The better the ESG score of the company, the better they do. On the other hand, ethical investing is soley about your code of ethics and what you deem is good.
Some people use the ESG score system to figure out which companies they should invest in for ethical investing. It’s good trying to mix both concepts as you can definitely find the perfect match for your beliefs and moral compass
Is Ethical Investing Profitable?
As we’ve said, ethical investing doesn’t put profit at the forefront of the investment. However, what’s worth noting is that humanity, in general, is more discerning about the companies they support too. People look down on companies that don’t actively participate in making the world a better place and this matters.
This matters because the longevity and performance of a company can depend on the support of the people. The more support they have, the longer they’ll stay relevant. The lesser support they have the harder it will be for them to stay afloat.
If anything, ethical investing can actually lead you to companies that can show stable growth for years. No matter how you look at it, investing is still investing after all. You can still make good gains with ethical investing but as with regular investing, you need to invest in the right companies.
Ethical investing can be a good way to diversify your portfolio. It may seem odd to factor in your own beliefs when investing but it’s also good to do this as you know that you are supporting companies that you have no ethical issues with. Hopefully, you can try this method of investing soon as well.
