The evolution of ethical investing
Ethical investment has traversed into the mainstream, as people increasingly choose to allocate their investable funds toward companies whose values and practices align with their personal beliefs, whether they be environmental, social, religious, or political. Some investors may choose to eliminate specific industries or allocate to other sectors which meet their ethical preferences. This involves creating an investment policy with very specific rules aimed at avoiding companies or industries that don’t meet the criteria.
Recent climate protests around the globe have raised awareness and prompted many people to question their (and corporations’) impact on the environment. This heightened awareness is transcending to investment preferences. With many people asking what they can do to reduce their carbon footprint, redirecting their investments is one credible option. Divestment from companies involved with fossil fuel extraction exemplifies this; research shows 45% of investors would move their money if they discovered it was invested in fossil fuels6.
Not a new kid on the block
Not new to the investment arena, ethical funds have been around since the 1980s; client demand has accelerated at pace more recently, as more opportunities and vehicles for investment arise. Data reveals an increasing number of investors (66%) would like to support companies that have a positive contribution to society and the environment6.
Another term to become familiar with is ‘impact investing’, this involves, not only the avoidance of businesses contributing to damaging activities, but actively supports companies bringing about positive change in and around their business and the wider world, whilst demonstrating high levels of accountability and governance. This involves reviewing companies’ operating practices and selecting companies that are trying to solve social and environmental challenges. With an impact approach, investment decisions are based on a company’s impact evidence (data), rather than personal beliefs.
Navigate with certainty
Heightened public awareness, and appetite for how money and investments can impact climate change and other societal issues, means that there is undoubtedly a growing movement towards greater mindfulness in ‘good’ investing. Research is essential because although a company’s mission statement may reflect the values and beliefs of an investor, their practices may differ. Selecting investments based on ethics offers no guarantee of performance.
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The value of investments can go down as well as up and you may not get back the full amount you invested.
The past is not a guide to future performance and past performance may not necessarily be repeated.