The concept of ethical investing is gradually becoming popular. As a result, investors have started questioning whether they should invest in companies that operate in unethical ways. For example, some companies engage in human rights abuse or environmental damage.
Ethical investing calls investors to invest in companies that follow social responsibility, transparency, and sustainability principles. Several organizations offer guidelines for ethical investment. They include the United Nations Global Compact, the World Business Council for Sustainable Development, and the Responsible Investment Association.
Understanding the guidelines provided by these organizations helps you invest ethically. So, yes, investing ethically can be done. Here’s how.
1. Define the Term Ethical
The first step to invest ethically is defining what ‘ethical’ means to you. This requires you to take time to write what you think an ethical investment looks like. For example, is an oil company with massive carbon emissions but has many environmental initiatives ethical according to you? Next, identify the industries you would support and those to avoid to ease the portfolio-building process.
2. Choose Ethical Investments
Start creating a portfolio that is in sync with your moral compass with the ethical companies you identified in the previous step. You can read reviews from research firms to help you know a company’s ESG scores and whether investing there is a good thing. Once you select a company, thoroughly research it to confirm that its business practices do not contradict its values.
3. Diversify your Portfolio
Investing ethically allows you to diversify your portfolio. Most investors begin with individual stocks as they are easy to trade. However, you can diversify your portfolio by investing in mutual funds. Take your time to choose different funds in the ethical field that will be the best addition to your portfolio. Identify a fund and go through its prospectus linked on your broker’s website.
Can you Make Money by Investing Ethically?
Yes, you can. Investing ethically is a great way to ensure your money works without compromising your values and beliefs. In addition, these investments positively impact society by investing in companies already doing good.
To invest ethically, you need to invest in profitable and ethical investments. Unfortunately, some companies in the ethical field have minimal potential. Therefore, you need to combine ethics with profitability. To find the perfect companies, research each company before investing.
On the other hand, a company may be profitable but not ethical. Or some started as ethical companies but strayed from their beliefs. As an ethical investor, you need to determine the way forward with such companies. So, start building a comprehensive portfolio of ethical and profitable investments and enjoy great returns.
What Makes an Investment Ethical?
An investment is ethical if it is driven by your values, morality, or religion. Once you identify companies that align with your beliefs and have the potential to bring in good returns, you have found a profitable and ethical investment and can now invest ethically.
To invest ethically, take time to build a portfolio. You need to thoroughly research potential investments before committing. So, you should never be in a hurry to invest and always uphold your beliefs, even when an ethical company turns rogue.