January 29, 2023

How to Ethically Invest

By LIZ BLACK on Jan 7, 2023

Ethical investing, also known as socially responsible investing, sustainable investing, or impact investing, refers to the practice of investing in companies or funds that align with one's values and beliefs. This can include companies that have a positive environmental or social impact, or that avoid certain industries or practices that may be considered unethical or harmful. Ethical investing is a way for individuals to use their financial resources to promote causes they care about and make a positive impact on the world. It is important to note that the specific criteria for what constitutes ethical investing can vary widely and may be based on personal, cultural, or social values.

Ethical investing is a broad term that can encompass a wide range of values and beliefs. Some common themes in ethical investing include:

Environmental sustainability: Investing in companies that have a positive impact on the environment, or that are working towards reducing their carbon footprint and promoting renewable energy.

Social responsibility: Investing in companies that treat their employees well, respect human rights, and contribute positively to their communities.

Avoiding controversial industries: Some investors may choose to avoid certain industries or practices that they consider unethical, such as tobacco, arms manufacturing, or gambling.

Impact investing: This type of ethical investing focuses on making a specific social or environmental impact through investments, such as investing in companies that provide clean water in developing countries or affordable housing in underserved communities.

Ethical investing is not necessarily about sacrificing financial return for ethical principles. Many investors find that companies with strong ethical practices also tend to be well-managed and financially successful in the long term. It is important to do thorough research and consider the financial risks and potential returns of any investment, whether it is considered ethical or not.

Importance of considering ethics in investing

When it comes to investing our money, it can be easy to focus solely on financial returns and forget about the impact our investments have on the world. However, the decisions we make with our money can have far-reaching consequences, and it's important to consider the ethical implications of our investments.

One reason to consider ethics in investing is that our money can be a powerful tool for promoting positive change. By investing in companies that align with our values, we can use our financial resources to support causes we care about and make a positive impact on the world. For example, if you care about the environment, you may choose to invest in renewable energy companies or companies that are working towards reducing their carbon footprint.

Another reason to consider ethics in investing is that it can help us align our financial decisions with our personal values and beliefs. When we invest in companies that align with our values, it can give us a sense of purpose and meaning behind our financial decisions. It can also help us feel more connected to the world and the impact our investments are having.

Finally, ethical investing can also be good for our own well-being and happiness. Studies have shown that people who feel their values and beliefs are being fulfilled in their work and personal lives tend to be happier and more fulfilled overall. By investing in a way that aligns with our values, we can contribute to our own sense of well-being and happiness.

In short, considering ethics in investing is important because it allows us to use our financial resources to make a positive impact on the world, align our investments with our personal values, and contribute to our own well-being and happiness.

Find companies that prioritize ethical practices

When it comes to ethical investing, one of the most important things to consider is the company's history of ethical business practices. This includes how the company treats its employees, its environmental impact, and its relationships with stakeholders such as customers, suppliers, and the community.

Here are some specific things to look for when researching companies with a history of ethical business practices:

Employee treatment: Does the company have a good track record of treating its employees fairly and with respect? This can include things like fair wages, good working conditions, and opportunities for professional development.

Environmental impact: Is the company actively working to reduce its environmental footprint and mitigate any negative impact it may have on the environment? Look for things like commitment to renewable energy, reduction of waste and emissions, and sustainable business practices.

Community involvement: Does the company have a history of giving back to and being involved in its local community? This could include things like charitable donations, community involvement, and support for local organizations and causes.

Supplier relationships: Does the company have ethical and sustainable supply chain practices? This can include things like fair labor practices, environmentally friendly sourcing, and transparency in supply chain management.

By researching these areas, you can get a sense of whether a company has a strong track record of ethical business practices and whether it aligns with your own values and beliefs. It's important to note that no company is perfect, and it's possible that even companies with strong ethical practices may have room for improvement in certain areas. However, a company with a history of ethical business practices is generally a good choice for ethical investing.

Consider the company's environmental and social impact

When considering ethical investing, it's important to take into account not only a company's history of ethical business practices, but also its current and potential future environmental and social impact. Here are some specific things to consider:

Environmental impact: What is the company's current environmental footprint, and what is it doing to reduce its impact on the environment? Some things to look for include commitment to renewable energy, efforts to reduce waste and emissions, and sustainable business practices.

Social impact: How does the company contribute to the well-being of its employees, customers, and the wider community? Consider things like fair labor practices, support for diversity and inclusion, and charitable giving.

Future potential: In addition to looking at a company's current impact, it can also be helpful to consider its potential future impact. For example, is the company working on innovative technologies or business models that have the potential to create positive social or environmental change in the future?

By considering both a company's current and potential future environmental and social impact, you can get a more complete picture of its overall impact on the world and whether it aligns with your values as an investor. It's important to note that no company is perfect, and it's possible that even companies with strong social and environmental impact may have room for improvement in certain areas. However, a company with a strong track record and potential for positive impact can be a good choice for ethical investing.

Avoid companies involved in controversial industries

When it comes to ethical investing, one way to align your investments with your values is to avoid companies that are involved in controversial or unethical industries. Some examples of industries that may be considered controversial or unethical by some investors include:

Tobacco: The tobacco industry has a long history of negative health impacts and has been criticized for targeting marketing to youth and developing countries. Some investors may choose to avoid tobacco companies due to these ethical concerns.

Arms manufacturing: The arms manufacturing industry has been criticized for contributing to violence and conflict around the world. Some investors may choose to avoid companies involved in the production of weapons and military equipment due to ethical concerns.

Gambling: The gambling industry has been linked to increased rates of addiction and financial problems for some individuals. Some investors may choose to avoid companies involved in gambling due to these ethical concerns.

Fossil fuels: The extraction and use of fossil fuels, such as coal and oil, has been linked to environmental degradation and climate change. Some investors may choose to avoid companies involved in the fossil fuel industry due to these ethical concerns.

There are many other industries that some investors may choose to avoid due to ethical concerns. It's important to consider what industries align with your personal values and beliefs, and to do your own research on the companies you are considering investing in. By avoiding companies involved in controversial or unethical industries, you can align your investments with your values and help promote positive change in the world.

Diversify your investments

Diversifying your portfolio is an important aspect of investing, and this is especially true when it comes to ethical investing. By spreading your investments across different sectors and industries, you can help mitigate risk and increase the chances of long-term financial success.

There are several ways to diversify your portfolio when it comes to ethical investing:

Invest in a variety of industries: Rather than putting all your eggs in one basket, consider investing in a range of industries to spread out your risk. This can include industries such as technology, healthcare, finance, and more.

Invest in different types of assets: In addition to investing in different industries, consider diversifying your portfolio by investing in different types of assets. This can include stocks, bonds, mutual funds, real estate, and more.

Invest in different regions: Another way to diversify your portfolio is to invest in companies and funds that operate in different regions around the world. This can help mitigate risk by reducing reliance on any one particular region or economy.

By diversifying your portfolio in these ways, you can help protect your investments and increase your chances of long-term financial success. It's important to remember that diversification does not guarantee a profit or protect against loss, and it's important to consider the financial risks and potential returns of any investment. However, diversification is a key aspect of responsible investing and can help you achieve your financial goals while aligning your investments with your values.

Look into socially responsible mutual funds or ETFs

If you're interested in ethical investing, but don't have the time or resources to research individual companies, you may want to consider investing in socially responsible mutual funds or exchange-traded funds (ETFs). These types of funds allow you to invest in a diverse range of companies that align with your values, without having to do the individual research yourself.

Socially responsible mutual funds are actively managed funds that invest in companies that meet certain social and environmental criteria. These criteria can vary widely, but may include things like environmental sustainability, social responsibility, and diversity and inclusion. By investing in a socially responsible mutual fund, you can align your investments with your values and invest in a diverse range of companies that meet these criteria.

Exchange-traded funds (ETFs) are similar to mutual funds but are traded on an exchange like a stock. ETFs often track an index, such as the S&P 500, and can be a low-cost option for diversifying your portfolio. There are many socially responsible ETFs available that invest in companies that meet certain social and environmental criteria. Investing in socially responsible mutual funds or ETFs can be a convenient and easy way to align your investments with your values. It's important to note that these types of investments come with their own risks and it's important to do your own research and consider the financial risks and potential returns before making any investment decisions. However, investing in socially responsible mutual funds or ETFs can be a good way to promote positive change through your investments without having to do the individual research on each company.

Use your shareholder power to promote change

As an investor, you have the power to influence the companies you invest in through your position as a shareholder. One way to use your voice as an investor is to advocate for change within the company by exercising your rights as a shareholder.

Here are some specific ways you can use your position as a shareholder to advocate for change:

Vote in shareholder meetings: Most publicly traded companies hold annual shareholder meetings, where shareholders have the opportunity to vote on important company decisions. By attending these meetings and casting your vote, you can have a say in the direction of the company.

File shareholder resolutions: Shareholders have the right to file resolutions on a wide range of topics related to the company's operations. If a resolution receives enough support, it will be put to a vote at the annual shareholder meeting. This can be a way to raise awareness about important issues and advocate for change within the company.

Engage with company management: As a shareholder, you have the right to engage with company management and ask questions about the company's operations and policies. You can do this through letters, emails, or by attending shareholder meetings and asking questions in person.

By using your position as a shareholder to advocate for change, you can help influence the direction of the company and promote positive change within the organization. It's important to remember that as an individual shareholder, you may have limited influence, but by working with other shareholders and using your voice, you can be an important force for positive change.

Vote in shareholder meetings and engage with company management

As a shareholder in a publicly traded company, you have the right to vote in shareholder meetings and engage with company management. By exercising these rights, you can use your position as a shareholder to advocate for change within the company and promote positive impact.

Here's what you need to know about voting in shareholder meetings:

When and where: Most publicly traded companies hold annual shareholder meetings, typically in the spring. These meetings may be held in person or remotely, and information on how to attend will be provided in the company's proxy statement or on its website.

What you can vote on: At the shareholder meeting, you will have the opportunity to vote on important company decisions, such as the election of board members and approval of company policies. You may also be able to vote on shareholder resolutions, which are proposals filed by shareholders on a wide range of topics related to the company's operations.

How to vote: If you are unable to attend the shareholder meeting in person, you can usually vote by proxy, which means you can submit your vote in advance. This can typically be done online, by mail, or by phone.

By voting in shareholder meetings, you can have a say in the direction of the company and advocate for change. It's important to do your own research and consider the potential impacts of your vote before casting it.

In addition to voting in shareholder meetings, you can also engage with company management by asking questions and expressing your concerns. As a shareholder, you have the right to ask questions about the company's operations and policies, and to request information about the company's performance and future plans. You can do this through letters, emails, or by attending shareholder meetings and asking questions in person. Engaging with company management can be a powerful way to advocate for change and promote positive impact within the company.

Evaluate investments for alignment with personal values

As an ethical investor, it's important to regularly review your investments to ensure they align with your values and beliefs. This can help you ensure that your financial decisions are aligned with your personal goals and that you are making a positive impact on the world through your investments.

Here are some steps you can take to review your investments and ensure they align with your ethical values:

Set clear investment goals: Before you start reviewing your investments, it's important to have a clear idea of what you want to achieve. Do you want to promote environmental sustainability? Support social causes? Avoid certain industries or practices? Having clear goals will help you focus your review and ensure your investments align with your values.

Research your investments: Once you have your goals in mind, take the time to research your investments and learn more about the companies you are invested in. Look for information on the company's history of ethical business practices, its environmental and social impact, and its involvement in controversial industries.

Reassess your portfolio: Based on your research, consider whether your current investments align with your values and goals. If you find that some of your investments no longer align with your values, consider divesting from those companies and reinvesting in companies that better align with your values.

Monitor your investments: Regularly reviewing and monitoring your investments can help you stay up to date on the companies you are invested in and ensure that they continue to align with your values. This can involve keeping track of news about the companies, attending shareholder meetings, and engaging with company management.

By regularly reviewing your investments and ensuring they align with your ethical values, you can make a positive impact on the world through your financial decisions and stay true to your personal beliefs.

Consider divesting from companies that no longer align with personal values

As an ethical investor, it's important to regularly review your investments and ensure they align with your values. If you find that some of your investments no longer align with your values, it may be necessary to divest from those companies and reinvest in companies that better align with your values.

Don't be afraid to divest from companies that no longer align with your values. It's important to remember that your financial decisions have an impact on the world and that you have the power to use your investments to promote positive change. If you find that a company you are invested in is engaging in practices or activities that you disagree with, divesting from that company can be a way to make a statement and promote positive change.

It's important to note that divesting from a company is not necessarily a guarantee that the company will change its practices. However, by divesting, you can send a message that you do not support the company's actions and that you are willing to use your financial resources to promote positive change.

Divesting from companies that no longer align with your values can also be a way to protect your own financial interests. By investing in companies that align with your values, you may be more likely to hold onto your investments for the long term, as you are more likely to believe in the company's mission and direction.

Overall, don't be afraid to divest from companies that no longer align with your values. It's an important part of ethical investing and can be a powerful way to use your financial resources to promote positive change in the world.

Conclusion

Ethical investing is the practice of aligning your financial decisions with your values and beliefs and using your investments as a way to promote positive change in the world. By carefully researching the companies you invest in and considering their environmental and social impact, you can make informed decisions that align with your personal values and goals.

One of the keyways to be an effective ethical investor is to do your research. This means taking the time to learn about the companies you are considering investing in, their history of ethical business practices, and their current and potential future impact on the environment and society. By thoroughly researching your investments, you can make informed decisions that align with your values.

Another important aspect of ethical investing is using your voice as an investor. As a shareholder, you have the power to influence the direction of the companies you invest in and to advocate for change. You can do this by voting in shareholder meetings, filing shareholder resolutions, and engaging with company management. By using your voice as an investor, you can promote positive change within the companies you invest in and help align your investments with your values.

In summary, ethical investing is a powerful way to align your financial decisions with your values and beliefs. By doing your research and using your voice as an investor, you can make a positive impact on the world through your investments and contribute to a more just and sustainable future.