Ethical Investing: What It Is And How To Do It

Ethical Investing: What It Is And How To Do It
Ethical Investing: What It Is And How To Do It

Article by Maria Fonseca and Paula Newton

Increasingly, consumers are becoming more concerned about making sure they are investing ethically. It can be all too easy to end up investing in companies that abuse human rights, or promote environmental destruction, or who even support the arms trade. According to  Ethical Investors this can easily occur, since investment into pension funds or other types of savings may be lumped together with that of other investors and then used to maximise profits. While this type of investing might bring a fine financial return, it is not responsible, however. Ethical investing means paying attention to this and avoiding investing in companies that are ethically, socially or environmentally irresponsible.

What is Ethical Investing

Ethical, or socially responsible investment provides investors the chance to invest only in companies whose activities they would support, and not in those that they would not. This can be tailored to a person’s specific needs. For example, some people may have a stronger preference not to invest in companies that are cruel to animals, while others may be more concerned about those that treat people poorly in the supply chain. Whatever your concern is, there are ways to invest ethically to ensure that you are not investing in companies whose activities you simply do not support, or even that you abhor. The following video, explains in nutshell what Ethical Investing or Social Responsible Investing is:

What Are The Alternatives We Must Pursue Or Take In Order To Invest Ethically?

Some companies have started offering opportunities for ethically and socially responsible investment. This helps to ensure that companies are not profiting from unsustainable or ethically irresponsible activities that lead to suffering. With socially responsible investment, criteria are set around social standards, the environment and governance that impact what can be invested in. You might think that ethical investment is a new phenomenon, but actually, it exist for a long time. The origins of socially responsible or ethical investing may date back to the Religious Society of Friends (Quakers). In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the slave trade: buying or selling humans. The first ethical investment fund in the UK was launched in 1984. This was brought to the market by Friends Provident.

What Are The Alternatives We Must Pursue Or Take In Order To Invest Ethically?

Nowadays, there are many more funds that might be considered ethically, socially or environmentally responsible to choose from. There is nothing wrong with profitability or making money, but as proponents of ethical investing argue, there is no need to do this by investing in unethical and unsustainable enterprises. By investing ethically it is possible to make a stand for what you believe in, while still achieving financial growth from your portfolio.

Many have already switched over to investing ethically, and studies show that ethical investing is one of the most rapid areas of growth in financial investment. This is likely to continue as people become increasingly aware of the damage that some big business does, and how unethically it can operate in some cases.

A question that some might have is, “What is the point?” Some may be cynical about the potential for change that this can bring. However, the more people that invest ethically, the more change that can be brought about, as companies start to see that the public finds unethical practices unacceptable, and importantly, that they put their money where their mouth is.

One company that offers socially responsible investment is Triodos. Triodos has developed Sustainable Pioneer and Equity Funds. For those that invested in them since their launch in April 2013, there was the possibility to gain returns of 37.1% and 25.4% for each in turn. This is comforting, as obviously one of the key goals of investment is generating a return. In fact, in general, it is reported that ethical funds tend to do well when compared with funds that have not been reviewed for their ethical nature.

For a Triodos Socially Responsible Investment (SRI) you only need £1,000 to get started. The company promises that you will have complete transparency around how the money will be utilised. The money is only invested in companies that meet specific and strict standards. There is also the possibility with this product to invest in small companies or larger ones, depending on your preference. Meanwhile you could also get a Triodos Ethical Stocks and Shares ISA. This offers the opportunity for tax efficient returns. In this case you can invest £15,240 or less in this tax year and you will not get charged income or capital tax gains. It is even possible to transfer your existing ISA into this one.

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