Ethical investing has become an increasingly important topic for investors. In response to growing demand from their customers, many fund managers have begun launching new products focused ethical investing on sustainable, responsible and impact investing.
The truth is investing today is not just about making money. That may be the end result, but investing is actually a moral activity with a wide range of implications. Investing your money has an effect on the world around you, and that effect can be positive or negative.
The decision of whether to invest ethically or not is a major one that will have ramifications for years to come. It could even impact your future financial prospects.
So, if you’re interested in ethical investing there are a number of ways you can benefit other than aligning your portfolio with your personal values.
In this article, we take a deeper look at why ethical investing is a growing trend.
Table of Contents
Reduce Exposure to Unethical Practices
One of the primary benefits of ethical investing is that it can help reduce your exposure to unethical business practices.
By removing yourself from the capital base of companies that have a history of questionable practices, you’ll be taking a stand against their behavior and sending a clear message that such practices are not acceptable.
Choosing to invest ethically means you can limit your exposure to companies that engage in activities such as forced labor, discrimination, corruption, environmental destruction, tax avoidance, and more. These are all things that many people try to avoid when they invest ethically.
Furthermore, if any of these unethical businesses were to cause harm in the future, your investment would likely take a hit as a result. On the other hand, if you invest in companies that are known for their unethical practices, there is a high chance that your investment could be negatively impacted by these practices in the future.
For example, tobacco companies make most of their money from selling harmful products. This means that any investment in a tobacco company is likely to be negatively impacted by future lawsuits as a result of these harmful products.
Make a Positive Change
Ethical investing is not just about avoiding industries that do harm. It’s also about investing in industries that do good and helping them succeed. You can help clean up the environment, encourage positive social changes, and promote good governance around the world.
For example, a growing number of investors have decided to divest from fossil fuel companies, which has had a major impact on the industry. In fact, this type of ethical investing has had such a significant impact that the term “carbon divestment” was named the top financial trend of the year by the Financial Times.
If you decide to invest ethically, you could decide to channel the money you invest towards causes that are important to you.
Diversify Your Risks
Investing ethically can actually help you diversify your risks and strengthen your portfolio since it will have many different types of assets.
Most ethical investors choose to invest in a wide range of industries and geographies. By spreading their money around with a focus on ethical investing, these investors are protecting themselves as much as possible from a downturn in any one particular industry.
By diversifying your risks, you’ll also limit your exposure to unethical practices. As mentioned above, businesses that are ethically focused are much less likely to experience a major scandal that could impact your investment. This is because businesses that are ethically focused are likely to have policies in place that avoid negative consequences.
Diversifying your risks through ethical investing also means you can reduce the overall risks associated with your investment portfolio. This could improve your chances of investing in ethical companies that will give you an even higher return on investment (ROI) over time.
Show Strength of Conviction
Investing ethically actually shows the strength of conviction. When you choose to invest ethically, you’re making a strong statement about what you believe in. You are taking a stand and making it clear that you are against certain industries, practices, and companies.
You won’t just be taking a stand against unethical practices; you’ll be actively investing in companies that are doing good things. This actually shows a lot of strength. It shows that you are committed to your convictions and not afraid to show them to the world.
Access to Unique Investment Opportunities
By investing ethically, you give yourself a chance to get in on the ground floor of companies that are likely to see massive growth.
For example, you might be able to invest in a company that is pioneering new technologies to solve major problems long before anybody else even knows about it. Or, you could invest in a company that is providing a service to a community that desperately needs the help.
Make Good Money
Ethical investing is not about sacrificing financial returns. It’s about finding a way to make money that aligns with your core values.
Ethical investing provides you with a chance to make money while also doing good in the world. Ethical companies are likely to have a positive impact on the world and have a positive effect on your investment portfolio over time.
By investing ethically, you can actually make more money than you would otherwise since etheical companies attract more business.
Limiting Your Exposure to Harmful Practices
Finally, by investing ethically, you can actually limit your exposure to harmful practices. By investing ethically, you can reduce your exposure to industries that engage in harmful practices.
For example, alcohol companies are known for their harmful products. If you decide to invest ethically, you could avoid investing in alcohol companies. This could limit the amount of harm you inflict on society. If a future lawsuit results in a significant amount of money being paid out by alcohol companies, you would avoid any negative financial impact as a result.
To Sum It Up
As you can see, investing ethically can provide you with a number of significant benefits. These include reduced exposure to unethical practices, the ability to diversify your risks, the chance to show the strength of conviction and the opportunity to access unique investment opportunities. What’s more, you can even profit from your investments while also doing good in the world.
There are plenty of reasons why you should double down on your efforts to invest ethically.