In an era where social media has increased the level of scrutiny placed on companies, businesses have a heightened obligation to ensure they are operating in an ethically responsible way. If businesses fail to run in a socially conscious manner, they may alienate those who are operating under the principles of ethical investing. This has seen many businesses launch significant initiatives in order to appease ethical investors, whether through pledges to become carbon neutral or commitments to only source fair trade goods.
What is ethical investing?
The pursuit of investing sees individuals using funds to back certain companies with the intention of generating a positive return on their original investment. Most investors research company histories and analyze market trends in order to decide where to channel their money. Ethical investing follows exactly the same process, except investors only consider companies that adopt practices that fit with their own personal beliefs.
That can often have an overlap with a passion for the environment; investors could rule out companies that use fossil fuels, instead looking to back businesses that utilize alternative forms of energy. However, ethical investing can extend into all branches of morals. There are numerous reasons that could rule out a company under the umbrella of ethical investing, including:
- An unsatisfactory stance on human rights;
- An endorsement of a political party at odds with the investor’s leaning;
- An involvement with classically controversial products, such as alcohol or tobacco.
By choosing to back businesses that share their moral stances, people can use the practice of investing to make a statement on aspects of society. Ethical investing may also be called ‘socially responsible investing’ or ‘socially conscious investing’. Despite the variations in terminology, the principle remains the same.
How did ethical investing become so popular?
Ethical investing is intrinsically linked to real-world events. This means its popularity has increased during polarizing periods in society, where people have rebelled against the ideas propagated by governments and businesses. For example, the horrors of the Vietnam War caused many Americans to take a stance against Dow Chemical, a multinational corporation that was profiting from the conflict by selling napalm to the United States military.
This prompted widespread protests, as well as a boycott of Dow. While Dow ultimately refused to buckle under the pressure from protestors and ethical investors, there are more examples that show the success of socially responsible investing in influencing real-world events. Overseas refusals to invest in South Africa during its apartheid rule in the 1970s and 1980s prompted domestic businesses to call for an end to apartheid. While this was far from the only factor driving the abolition of apartheid, ethical investing certainly played its part.
That success has ethical investors in 2019 believing that their actions can influence stances towards the climate crisis. Those governments and businesses that are resisting calls to operate in a more ecologically conscious manner do so because of financial motivations. If ethical investment becomes more common, then those businesses will be forced to rethink their strategy. This is why ethical investing remains so popular today: people believe that it can be a genuine driver of positive change.
How and where to invest ethically
All types of investor are able to follow the practice of ethical investing if they desire. If there are industries or markets where ethical investing is not possible, choosing not to invest at all shows implicit support for the notion of ethical investing.
Here are a few industries in which ethical investment decisions are more explicit.
1. Mutual funds
Mutual funds are one of the clearest opportunities in which investors can back up their personal beliefs with monetary actions. There are many mutual funds that have been formed specifically in response to ethical issues. The fund may only contain stocks from companies that have made firm commitments to operating in a green manner or companies that adhere to a particular religious belief.
Many ethically responsible mutual funds also direct a certain percentage of investments towards helping communities, a more concrete product of ethical investment. While the overall aim is still to profit from the investment, socially responsible mutual funds give investors a way to show their support for a certain type of company.
While traders will inevitably prioritize the reliability and value of a forex broker, it is possible to use ethics to inform their decision about which trading platform to use. There are several different types of forex brokers, all of whom have different priorities and diverse approaches to their business. This means that individuals have plenty of options when it comes to choosing a trading platform that aligns with their beliefs.
By choosing traders who are renowned for their sustainable operating practices, individuals can show support to those brokers that have made a clear commitment to improving the environment and wider society. Sharing an ethical standpoint can help traders to feel an element of kinship with their broker, which is something that develops a more positive long-term relationship between the two.
3. Green co-operatives
Community-owned businesses are already an effective way of making a positive contribution to the local area, but green co-operatives take this to the next level by making a positive contribution in the global battle against the climate crisis. There are over 1 billion members of cooperatives worldwide, so there will always be a co-operative that fits with an individual’s ethical beliefs.
Green co-operatives, such as those that work in developing the production of renewable energy, rose to particular prominence earlier this decade. In 2012, Northern Ireland’s Drumlin Wind Energy Co-operative offered people the chance to return 7 to 10% on their investments annually for 20 years, all while supporting the production of alternative energy. That is just one example of the many types of co-operative investments that provide both monetary and environmental gains.
Ethical investing is not going away any time soon. If anything, it is set to become even more popular in the years ahead. Having the funds to allocate to investments is a privilege, so it is no surprise to see investors looking to use their privilege for the benefit of society and the environment.