There are various ethical ways of investing. You could purchase shares in individual companies or invest in socially responsible mutual funds or buy green or social bonds, which support projects with environmental or social benefits. Start by setting out your priorities, such as avoiding exploitative labor practices or supporting climate change research. Next, use your online broker’s filtering tool to locate companies or funds that match those criteria.
1. Align your investments with your values
Ethical investing means selecting companies that reflect your values while also yielding financial returns. Ethical investments offer an effective way of contributing towards building a better world while reaping financial returns at the same time. Before investing, identify which ethical principles you want your investments to reflect, such as environmental sustainability or stopping abuse of children and animals. Once this is complete, search for funds that align with those values.
Finding funds that adhere to your ethical standards is simple using tools such as Invest Your Values or Weapon Free Funds; both offer user-friendly rating systems for over 3,000 funds and exclude those investing in weapons or tobacco, respectively. Once found, diversify your portfolio while following company reports and performance to ensure you are making informed choices.
2. Drive structural change
Structural change investing is an effective way to align your financial decisions with your values and contribute to a sustainable future. This type of investing places equal emphasis on social impact while still offering competitive financial returns. Ethical investments aim to avoid companies engaged in harmful activities, such as coal mining and tobacco smoking, while prioritizing those that promote responsible business practices and sustainability.
Pick an investment option that best meets your preferences and level of involvement. Some ethical investors favor individual stocks, while others opt for passive funds that track market indices; when making this choice, it’s essential to consider your risk tolerance and investment timeframe when selecting your strategy.
3. Invest in mutual funds
Step one of ethical investing is identifying your most valued values and desired impacts of investment funds before finding funds that align with these priorities. Many ethical investment funds use various criteria to select and exclude companies for investment, such as ESG (environmental, social, and governance).
Research can be completed independently by reading fund documents such as the Product Disclosure Statement and Statement of Investment Policies and Objectives or online tools; another option would be working with an independent financial advisor (IFA) who will take care of all this for you in building an ethical portfolio.
4. Develop a strategic approach to shareholder activism
Strategic shareholder activism is key for creating an investment portfolio aligned with your values, such as increasing ethical investments or adding them to an asset allocation mix. Activists frequently target companies for issues related to governance. For instance, activist campaigns tend to target those with poor board composition, fiduciary responsibilities, or lack of transparency; company pay practices are another common target of shareholder activism.
Proponents may file proposals even when they know they won’t pass in order to bring attention to a particular issue or spark market dialogue. Companies with poor director election results, low participation rates in say-on-pay votes, and inadequate responses to shareholder proposals often fall prey.
5. Stay up to date on ethical issues
Ethical investing can be confusing when there is so much different terminology being thrown around, but ultimately it comes down to what values are important to you and how your investments impact the world.
There are various online tools to assist, such as As You Sow’s Invest Your Values database that offers searchable databases of funds and companies or ShareAction’s ability to track how funds vote at company annual general meetings. Consult an independent financial advisor (IFA) specializing in sustainable investments to assess your risk profile, determine how much to invest, and find suitable ethical options.
6. Avoid greenwashing
Integrating ethical investments into your portfolio can be an excellent way of supporting social and environmental change, but you must keep certain points in mind when selecting an ethical investment strategy. Certain funds label themselves as sustainable or green without offering specific details of what this entails, for instance by excluding tobacco and firearms from their portfolio without providing clear justification.
Select a fund that prioritizes transparency and aligns with globally accepted standards to avoid greenwashing and ensure your investments are truly ethical. If unsure, speak to an independent financial advisor.
7. Don’t be afraid to ask questions
As global climate change risks mount, now is an opportune moment to explore ethical investments. Socially responsible funds may help you avoid polluting industries while supporting businesses that adhere to green practices—your financial advisor can assist in finding suitable funds that fit your specific requirements.
As with online dating, investing requires some research. Start by consulting third-party analyses of funds like Fund EcoMarket or ShareAction; keep an eye out for their vote at company AGMs; and finally seek funds with a stewardship approach that emphasizes board diversity, shareholder communications transparency, and ethical business practices.
8. Don’t be afraid to lose money
Ethical investing means channeling your funds towards industries that share your beliefs while avoiding those that do not. This could include investing in sectors that support environmental protection, consumer rights protection, religious affiliation, and employee/animal welfare as part of this practice. Ethical investors can avoid sin stocks through exclusion or search out funds that meet specific criteria. Ethical investors should also watch out for greenwashing, where companies make misleading or exaggerated environmental and social claims.
Attracting investors interested in socially responsible investing is becoming an increasingly attractive proposition, and many are drawn to this form of investing for its intrinsic satisfaction and potential impact on society. Many have adopted this strategy because they feel good doing it.
9. Don’t be afraid to change your mind
Ethical investing is an emerging investment style that emphasizes moral principles along with financial returns. Typically, this involves avoiding sectors that conflict with your values—for instance, tobacco, arms manufacturing, gambling, and fossil fuels—by selecting investments instead.
Searching for companies and funds that support your core values through policies, practices, or products such as gender equality, environmental sustainability, or animal welfare may also help. Prioritizing ethical investment while simultaneously seeking financial gains may seem counterintuitive, but that doesn’t have to be the case. Many of Australia’s largest super funds and managed investment options offer ethical options that can achieve both.