Investment opportunities come in many ways. One of the ways to invest resources is through ethical investment. It is here that one puts resources in companies that relate well with their practices. One may need to do this due to religious, cultural, or even political influences. There is more to gain and understand about ethical investing. One must also learn some of the advantages and disadvantages of this investment option. To see these details, take a look at this page.
Table of Contents
What is Ethical Investing?
Ethical investing is a type of investing that takes into account the investor’s personal values and ethics before making the investment decisions. The values can be moral, social, environmental, religious, or political. This affects the investment process in the following ways
- Avoiding investments whose values differ from that of the investor’s values. For example, Avoiding investments in sin stocks, companies involved with stigmatized activities, such as gambling, alcohol, smoking, or firearms.
- Choosing investments whose values are in sync with that of the investor’s values. For example, making investments in companies that produce environmentally friendly products, or their manufacturing processes are economy friendly. Investing that focuses on the projects or areas that are committed to the preservation of the environment such as Pollution reduction, Fossil fuel reduction are also called Green Investing.
Types of Ethical Investments
ESG Investing: Environmental, Social, and Governance
ESG investing considers how environmental, social, and governance risks and opportunities can cause material impacts on a company’s performance. They can invest in sustainability while maintaining the same level of returns as they would with a standard approach.
Our article What is ESG Investing, ESG Mutual Funds, ESG Index explains it in detail.
SRI Investing: Socially Responsible
SRI funds avoid investing in controversial areas such as gambling, firearms, tobacco, alcohol, and oil. Here, the investor’s moral value is given critical importance in investment selection.
Impact funds place equal importance on fund performance. Hence, they aggressively look at creating ethical changes supporting companies that provide certain products and services. Impact funds are suitable for investors who are socially responsible but also want good returns.
Religion or Faith Investing
Faith-based funds only invest in stocks that follow religious values and ideals, and strictly exclude investments that don’t fit the category. An example of a religious-based ethical investing regime is seen in Shariah-compliant investments. These investments are governed by the requirements of Shariah law and the principles of Islam. It shuns investments in alcohol, gambling, pork, and other forbidden items. In India, we have Ethical Funds like Tata Ethical Fund, Taurus Ethical Fund, Nippon India ETF Shariah BeEs
The advantages of ethical investment
Enjoy sustainable returns
Even though this is a different kind of investment choice, it gives one more chance to earn extra returns. It is because there are so many businesses following the same ethical values to survive. These are real businesses with high returns on investment. When you choose to invest in such companies, expanding your market in other countries is possible. It can also be easy to penetrate new markets. It is after using the same investment concept. The key point is to identify the most profitable companies with these values.
It makes you feel good
It is nice to have something valuable to enjoy in life. It is as well good to see that you can make a difference in someone’s life. Besides, it is decent to know you can make some resources from something you love. With ethical investing, it is possible to gain money as well as love your life. It is out of these simple things that you can help society in many ways. It goes a long way in creating a socially responsible society in your place.
Have financial help
Although it is judicious to invest in a good course, sometimes financial constrain might affect your ideas. Most people with great values cannot open a business due to financial issues, but most of the companies using this concept are ready to help other investors make in any field. It means that it is quite possible to get capital on a new business from such firms. These companies can also offer investment advice on how to reach out to new consumers. It helps to see other companies with this idea making it big in various sectors. Besides, you learn more about taxations plans in this kind of business. These are effective elements to help achieve your investment goals.
Risks involved with ethical investing
Limit your investment options
Most companies do not follow ethical values when investing resources. It indicates that only a few of them can offer a chance to make money. It could need some time before you identify any firm these values. There is no guarantee that these firms will remain relevant after some time. It is a great risk that someone has to consider before putting resources in any firm. So, most investors will have to look for other options for investment needs.
Requires more time and research
Before one decides to invest in the intended field, it is vital to do good research. It is overwhelming to learn everything about companies under this rule. It could force one to pay for research. For more investors, these are extra costs they cannot afford to maintain. It is also difficult to find the exact company that shares the same ideologies. In some countries, it is challenging to find many firms with great values. So, one has to spend more effort to carry out these researches outside their countries. All these will affect your investment plans.
Before you settle for any company with such values, it is good to know about the costs to incur. It could include investment funds expected from such firms. It is also because some products or services could be hard to sell. These costs can limit your profits. It may be hard for someone to start on this sort of investment.
It is tricky to invest in any form of business, but when you have relevant information on the business in mind, it is simple to make wise decisions. Here, one ought to recognize if they are ready to invest in ethical investment or not. But, before making any choice, it is wise to see if the values of the company in thoughts are fitting or not.
Video on Are you an Ethical Investor?
Is there a way to have an investment portfolio without being a “part of the problem”? Actually, there is!
- What is ESG Investing, ESG Mutual Funds, ESG Index
- International Mutual Funds: What are these, Pros and Cons, Tax
What do you think of Ethical Investing? Do you think Ethical Investing is possible? Have you invested in ESG funds etc?