Investors have different views on what is considered ethical and what is not.
Whether you follow a traditional value investing strategy or believe in taking more of a risk to achieve higher returns, your view on investing often comes with certain ethical implications.
Differences in how and where you invest could impact your belief in what is ethical and what is not. Read on to learn what ethicality means when investing and how it can help you find new investment opportunities.
Ethical Investment: What Ethicality Means
When you say something is ethical, you are referring to whether the practice is morally right or wrong. For investors, this often comes down to their view on certain strategies or areas of investing that they believe are right or wrong. While there is no universal rule on what is ethical or what is not, there are often general principles of what ethicality means in investing.
What ethicality means: Investments Considered Ethical
In terms of the investment process, ethical investors will often look for businesses committed to positive impact and doing business ethically. Ethical investments also usually have a long-term outlook. Some examples of ethical investments include:
- SRI funds: Investors who adhered to their moral standards would not invest in any industry or firm that did not align with them, typically falling into the ‘negative impact’ category. For example, investors who believe tobacco and liquor manufacturing firms are morally reprehensible would not invest in them.
- Faith-based funds: They invest only in companies whose values and ideals typically match their religious beliefs.
- ESG funds: Unlike SRI funds, ESG funds investors consider how environmental, social, and governance risks and opportunities can impact a company’s performance.
- Impact funds: Impact funds emphasize both fund performance and sustainability. Hence, they aggressively look at creating ethical changes by supporting companies that provide certain products and services. Impact funds allow socially responsible investors to earn good returns while doing good.
Which Strategies or Investments Are Not Seen as Ethical?
There are a few areas of investing where investors often feel they are not ethically able to participate. One common area where many investors feel they cannot ethically participate is in industries that are very harmful to the environment. Investing in energy sources like fossil fuels is often seen as unethical because they harm the environment. Another area where many investors feel ethically challenged is investing in industries that produce and sell harmful products, such as tobacco and firearms.
Why Do Investors Care About Being Ethical?
Ethical investors often care about being ethical because they believe it is the right thing to do. They also believe that being ethical is a more stable approach to investing. Ethical investors also believe it can lead to more attractive long-term returns.
However, when you invest ethically, you often choose to put your morals and beliefs above your profits. This can often mean that you may not achieve as high of a return on your investments. Ethical investing can also be a great way to feel good about your investments and contributions to the world.
Ethical investing is often an individual decision. While many investors may agree on what types of investments are ethical and what is not, there is no universal rule. Now that you know what ethicality means, your decision to invest ethically can have many benefits and help you feel good about your investments.