When you invest in the stock market, are you solely focused on profit, or would you like to support sustainable and ethical causes too?
Ethical investing is often regarded with suspicion. People assume that investing in sustainable stocks comes at a price. They worry their portfolio won’t perform as well as it would if they hadn’t considered their impact.
Ethical investments outperformed traditional investments in recent years. The investment world has been rife with ESG (Environmental, Social, Governance) marketing; growing concerns have been raised about the future of the planet, and young, sustainability-conscious investors are eager to make a change.
Perhaps the biggest challenge when figuring out how to invest ethically is actually finding ethical stocks and funds. Many investments are given generous ESG ratings but with a little research, you may find that they don’t align with your values.
One reason ESG investing is so complicated is that there aren’t any set rules or regs outlining what makes something sustainable. You don’t need to adopt an all-or-nothing approach to ethical investing. The following terms describe different types of ethical investors:
- Light Green Investors: They’re aware of the need for more ethical and sustainable companies and wish to support those willing to commit to change. However, they aren’t tied to ethical companies. Perhaps they want to “test the water” by devoting a percentage of their portfolio to ethical stocks and funds without worrying too much about the impact of the rest of their assets.
- Medium Green Investors: They’re fairly committed to ESG issues and invest a significant chunk of their portfolio in ethical stocks and funds. They might regularly review their portfolio and make decisions based on new research and data.
- Dark Green Investors: They’re completely committed to ethical investing and won’t support any company that doesn’t align with their values. These funds exclude industries like tobacco, alcohol, weapons, and those that test on animals.
Investing in funds rather than picking individual stocks can be a smart way to diversify your portfolio and reduce risk. The main types of ethical funds include: Socially Responsible Investing Funds (SRI Funds); ESG Funds; Impact Funds; and Faith-Based Funds.
With so much pressure for businesses to reduce their carbon footprint, minimize waste, and ensure workers overseas are paid a fair wage, some companies have been accused of “greenwashing,” aka exaggerating their green credentials to capitalize on growing demand. Some brands might spend millions promoting recycling initiatives, while ignoring unequal pay and poor working conditions.
Ethical investing can be complex, but you can start small. If you’d like help finding appropriate investments, get in touch with your financial adviser.
This article originally ran in the February 2022 issue of Dockwalk.