Finance expert Felix Beck has released his latest guide to socially responsible investment opportunities. Here you can discover more about exactly what ethical investment is, how to locate ethical investment opportunities and the companies that share your ethical values.
Felix Beck: A guide to socially responsible investment opportunities
What is ethical investment? It comes down to using ethical principles to source investment opportunities. Of course, one investor’s interpretation of ‘ethical’ may be quite different to another’s. Although the phrase ‘ethical investing’ is frequently used instead of ‘socially conscious investing’, there are significant differences between them. Ethical investing means investing in accordance with an individual’s specific ethics, whereas a particular set of guidelines is usually followed when making socially conscious investments.
What an ethical investor should avoid
The world views of ethical investors can differ drastically, but many ethical investors tend to avoid opportunities with connections to alcohol, smoking, gambling and weapons. An ethical investor may also decide to work only with companies and organisations that share their particular values. They may well scrutinise a company’s history to see if they have sound ethical similarities. Other investors have deep-rooted environmental concerns, while others may have profound religious ideals. It’s not uncommon for investors to look for opportunities that don’t undermine or compromise their political persuasion or affiliations. Ethical investors often conduct serious research to ensure opportunities are consistent with their values.
Ethical investment: A short history
Over the years, religion has regularly played a part in influencing the activities of ethical investors. The Quakers, who have their origins in 17th-century England, are thought to be some of the earliest ethical investors. Members of the various Quaker movements were banned from being involved in the slave trade. Islamic investors often avoid opportunities that are linked to gambling, alcohol and certain meat products. During the 1960s and 1970s, many ethical investors refused to work with companies that were seen to have benefited from the Vietnam War. From the 1990s onwards, more and more ethical investors began to direct their resources into eco-friendly companies that supported sustainability.
Seek out genuine commitment to ethical business practices
Many companies and organisations claim to promote ethical values, but that doesn’t necessarily mean they are actually committed to them. Enron, the controversial energy, commodities and services company, once published a detailed document on their deep commitment to ethics, but were later found to have violated a number of their own policies as well as several state laws.
How to invest responsibly
The primary aim of investment is of course to make money, but that does need to come at the expense of society. Many investors look to work with companies and organisations that make genuine and tangible contributions to society, such as businesses known for good employee welfare, paying a living wage, making a commitment to sustainability and using clean energy. If you don’t have the knowledge or indeed the time to identify companies that share your values, you can invest in ethical funds.
Look for ethical investment funds
By investing in funds, you can place your money in a number of businesses that share your views. Funds give you the opportunity to invest in a diverse range of businesses at once, encompassing enterprises from all sorts of different sectors. Fund managers can also back companies in their bid to become more ethically responsible. If you care passionately about where you’re putting your money, there are many options open to you.
Is ethical investment the right route for me?
If you’re not seeking instant returns and want your money to have a positive impact on the world around you, responsible investing could be the best move for you. So if you have debts that need repaying or quick access to cash, this may not be the best route for you to choose. Successful ethical investment is about putting your capital into companies that not only share your values, but also stand a chance of performing well in the years ahead. Companies that are especially appealing to ethical investors may include those that are taking serious steps to reduce their emissions and improve their impact on the environment. Ethical investment is certainly no longer a niche concern, and indeed the Financial Times has reported that the amount invested sustainable rose from $2 trillion to $31 trillion between 2013 and 2019. Around a quarter of all funds are now thought to be linked to sustainability.
Where could my ethically invested money be going?
If you don’t use caution when investing your money, it could be used to support companies and sectors that don’t share your views like alcohol and tobacco companies, weapons manufacturers, tax-dodging companies and businesses who do not put a priority on the health and wellbeing of their employees. In recent years, there has been a growing trend of people moving to ethical pension funds to avoid a conflict with their values. That said, an Interactive Investor study found that 53% of respondents simply did not know whether their pension was invested ethically, in a way that equated to their beliefs or moral values. But there is growing evidence that sustainable, ethical and responsible funds are beginning to perform better than conventional ones, suggesting it is indeed possible to see a return on your investment that does not compromise your principles.
Look for ethical pension providers
There has been progress: last year, a number of major pension providers agreed to align their portfolios with net-zero targets. But according to Tony Burdon of the campaign group Make My Money Matter, much more needs to be done to ensure investment money is being used to combat the major issues of the day, like the climate emergency. Burdon said his group was pushing for more funds investing in the likes of social housing, renewable energy, green infrastructure, healthcare and education.
Consider switching banks
Another campaign group, Bank.Green, lets you quickly discover where your bank is investing cash, and they provide a tool that lets anyone see a report on your bank’s fossil fuel record. Research from Triodos, the ethical Dutch bank, found that around 70% of UK consumers believed that banks and finance companies had to be transparent on where they were investing their customers’ money. Around half of respondents thought these companies were being too secretive about the industries that they were investing in.
Felix Beck: more progress is needed
According to Felix Beck, a considerable amount of progress has been made in the area of ethical investment. However, he suggests that much more work is required to ensure a proper degree of openness and transparency so that socially responsible consumers can be certain about their investments.