So, you've saved up a nice little sum of money and you're all set to watch it grow. But here’s the kicker: you want your money to work in places that resonate with your heart, not just your wallet.
Investing in alignment with your values will surely bring a few questions to mind. What makes an investment 'ethical'? What are the most ethical investment funds? How can I confirm that an investment is as ethical as it claims to be? In this article we will explore ethical investment funds, and how these funds offer a variety of options, each catering to different investor preferences and principles for their investing journey.
Ready to find out more? Let’s help you embark on an investing journey that's about more than choosing investments that are good for your pocket.
What is ethical investing?
Investing can be about more than making money; it can also be about doing good in the world. This is where ethical investing comes into play.
Ethical investing, socially responsible investing, or value-based investing is about backing companies that are doing something positive for society or the environment.
Engaging in ethical investing can be quite rewarding, but it requires intentional consideration. It starts with figuring out what matters to you most. It could be anything from clean energy to ensuring workers are treated fairly.
Now, imagine having an informed buddy who's helping you pick out these great companies to invest in. That's what ethical investment funds are all about. These funds are big pools of money from lots of people, all invested in businesses that care for a certain cause.
It all sounds good, but with greenwashing becoming common, how can you ensure these companies are walking the talk? The experts, often called ethical partners, have a knack for finding companies that are truly making a positive difference. Ethical partners use certain criteria and screening processes to dig into what these companies are up to, making sure they're the real deal.
How does ethical investing differ from traditional investing?
So, the traditional way of investing is all about putting your money into different companies to grow your cash pile. The main focus here is on profits.
However, ethical investing takes that concept and gives it a values-based twist. In this journey, you will surely encounter the term " ESG ", which stands for Environmental, Social, and Governance. Companies that engage in ESG investing tend to focus on caring for the environment, ensuring happy workplaces, or actively contributing to society.
And here's a fun fact: historically, some ethical investment funds have outperformed traditional funds. So, doing good and making money can go hand in hand!
The importance of ethical investing
Ethical investing can be a powerful way to make sure your hard-earned dollars are working in line with your values and beliefs. But what impact does it have on the investor and the world?
- Impact on society and environment. Think of it like this: every dollar you invest is like casting a vote. With ethical investing, you're voting for companies that care about the planet and the people on it. By investing in these champs, you're helping direct money towards positive change.
- Personal satisfaction. Imagine going to bed knowing your investment dollars are working hard not just for your financial growth, but also to make the world a better place. You're not just chasing profits; you're making choices in sync with your beliefs. And that's peace of mind money can't buy.
The beauty of ethical investing is that it looks different for everyone. Remember that it's all about what feels right for you. Your investments should mirror what you believe in. You get to decide what influences your investing choices while hopefully making a neat profit too!
What are some types of ethical investment funds?
In the world of ethical investing, there's more than meets the eye. At one end, it's all about figuring out which values matter to you. On the other end, there are different funds for different causes. Investors have different reasons for choosing one socially conscious fund over another.
So what are the types of ethical investment funds? Why do investors choose to invest in them, and what are some examples?
ESG Funds
What are they? As mentioned, ESG stands for Environmental, Social, and Governance. Let's break down each factor further:
- Environment. If a company is scoring big points here, it means they're taking steps to reduce their carbon footprint, recycle more, or even clean up some of the damage that's been done. Companies in this category are all about reducing negative impacts on the environment.
- Social . This is a business that cares about people – their employees, customers, and even the communities they operate in. This factor is all about companies ensuring safe work conditions, promoting diversity, and supporting community projects.
- Governance . This factor deals with how companies are run. We're talking about things like fair pay, how decisions are made, and if they're done with transparency and honesty.
ESG funds are a special kind of investment basket. They group together companies that are taking care of our planet and the people in it while running their businesses with the utmost integrity.
Why invest here? Investing in ESG funds feels like giving a worthy cause a hug. Plus, as we mentioned earlier, it's worth noting that historical data shows that some ESG funds have outperformed traditional funds. ( NOTE : Here's the part where we note that past performance is not an indicator of future performance.)
Example of an ESG fund: BetaShares Global Sustainability Leaders ETF (ETHI). This fund is filled with companies from around the world that are leaders in environmental and social issues and have good governance practices.
Socially Responsible Investment (SRI) Funds
What are they? SRI funds are your friendly neighbourhood watch of the investment world. They avoid companies involved in things considered harmful or "sin" industries and choose those that are making positive societal impacts. You can find more information about this type of ethical investment on the Responsible Investment Association Australasia website.
Why invest here? If you're someone who wants your investments to align with your socially conscious personal beliefs, this could be your go-to. It's like choosing to support a local, organic grocer over a big, harmful corporation.
Example of an SRI fund: Vanguard Ethically Conscious International Shares Index Fund. This fund avoids companies involved in fossil fuels, the creation of weapons, alcohol, tobacco, and the like.
Impact Funds
What are they? Impact funds aim to make a direct positive impact on society or the environment, besides simply offering financial returns.
Why invest here? Choosing impact funds means you're betting big on change. You're directly funding projects or companies that aim to solve societal or environmental issues.
Example of an impact fund: Impact Investment Group. They focus on investments that have a positive impact, like creating affordable housing and renewable energy projects.
Sustainability Funds
What are they? These funds are the nurturing gardeners of the investment world, planting seeds in companies that aim for the long-term health of our planet.
Why invest here? You'll be backing companies that are champions of green practices, working to create a future where the business world and nature exist in harmony.
Example of a sustainability fund: VanEck Vectors Global Clean Energy ETF. This fund is a basket of companies from around the world that are leading the charge in clean energy. It puts your money into companies that are working hard on things like solar power, wind power, and other renewable energies.
Religious or Value-Based Funds
What are they? These funds align with the moral and ethical principles of particular religious groups or value systems, choosing companies that respect these principles.
Why invest here? If you're someone guided by your faith or personal values, this type of fund lets your money resonate with your spirit.
Example of a religious fund: Though a super fund, Catholic Super aims to grow the retirement savings of its members while considering the moral and ethical implications of the investments.
Now we've taken a good look at different types of ethical investment funds. Each ethical investment fund has its own special focus; it's all about matching your values with the right fund. And don't stress about making the "perfect" choice. The best part is that you can mix and match based on what matters to you.
What are the challenges of investing ethically?
Ethical investing, while noble and forward-thinking, does come with its set of challenges. Let's explore them:
- Finding the right fit : Ethical investment is all about matching your money with your values. However, not all ethical investment funds have the same goals. You need to sift through funds to find the one that aligns with what you care about.
- Cost : Investing ethically can sometimes be a tad pricier. It's because these funds are doing extra work. They often involve more in-depth research and monitoring to make sure they're truly "ethical”.
- Performance : Ah, the big question! "Will my ethical investment perform as well as others?" Some investors think ethical investments don't perform as well as traditional ones. That's not always true, as historically we've seen certain ethical investment funds outperform traditional funds. But it's worth noting that some ethical funds might grow slower than others. We also need to stress that, unless you own a crystal ball, you can't predict with certainty which funds will perform best in the future.
- Greenwashing : Ever heard of companies saying they're "green" when they're not really? That’s greenwashing. Some funds might say they're ethical, but their actions don't line up. To ensure you combat this, always look under the hood to see how a fund is investing, and how they classify "ethical".
- Limited options : In the grand sea of investing, ethical funds are like a cool little island. They're growing, but there aren’t as many choices as the vast ocean of traditional funds. But, this is changing as more people hop onto the ethical bandwagon.
- Research time : With all the information available out there, figuring out which ethical investment is genuine and aligns with your values can take time. Although it can be a bit time-consuming, it's totally worth it! It's essential to do your own homework and make sure you're making the right choice for you.
In a nutshell, ethical investing can be a great way to blend money-making with positive change. As with any investment, there are challenges. But with some research and gained knowledge, you can navigate through them with confidence.
How to invest ethically
So, you may have already decided to start your ethical investing journey. Now, we're moving from the “why” to the “how” of ethical investing. Let's explore the first steps you can take and the investing strategies you can pursue:
Reflect on personal ethics, values and goals
Before you dive in and start picking ethical investment funds or individual stocks, there's a crucial first step: reflection. Think of this as looking in the mirror and asking yourself: "What do I stand for?" It's all about understanding your personal ethics, values, and goals.
Maybe you're passionate about reducing carbon emissions or supporting companies with a strong track record in sustainable practices. Or perhaps you want to invest in partner funds that only back businesses with a positive social impact.
The key is to be clear on what matters to you. Because when you know what you stand for, it's way easier to find investment opportunities that match your values.
Do the research
Research is key when choosing where to invest. Because the vast information available out there can be overwhelming, here are some things to help streamline your research:
- Ethical focus : What values does the investment support? There are many options like sustainability funds and impact funds. Find what matters most to you.
- Transparency & reporting : Check if the investment is open about their actions and results. Transparency is essential.
- Ratings : Some ethical investments have ratings, such as the MSCI ESG Ratings . These can help you know how "ethical" they are.
- Risk : Investments have risks. Some are high, and some are low. It's essential to know your comfort level.
- Fees : Check for any costs tied to your investment. No one likes unexpected charges.
- Performance : Look at how the investment has done in the past. Past performance can give you an idea, but keep in mind: past results don't predict future ones. Doing the research will also help you spot the top-performing ethical funds, so you can support a cause you believe in without potentially sacrificing the earning potential.
- Diversification : It's good to spread your money in different investments. This way, you don't rely on just one and it helps you manage risks.
So, as you move forward in your ethical investing journey, remember it’s a bit like shopping. You’ve got to know what you’re looking for, check the labels, and make sure it aligns with your values and investment goals. When you're ready to take that next step, there are a couple of key ways you can invest ethically – directly in a company, or through an ethical investment fund.
Invest directly in a company
Imagine you've heard about this company that's making waves by reducing carbon emissions. So, you think: "I want in!" Investing directly in them means buying a little piece of that company.
Now, investing directly has its perks. First, you get to pick specific companies that line up with what you believe in. No need to rely on someone else's choice. And, you can see first-hand how your chosen company is doing. If they are doing well in the market, your little piece of the company might grow in value. Though many long-term investors within the Pearler community prefer ETFs , you can invest in a specific cause you support by buying individual companies .
But remember, all investments come with risks. Sometimes, even if a company has great values, it may still face challenges in the market. So, always do a bit of homework. Look at things like their past performance, how transparent they are, and if they've got a good track record in the ethical department.
When considering ethical investing, directly investing in a company can be a great strategy. It's all about supporting businesses you believe in and watching your investment grow.
Invest in an ethical investment fund
One of the easiest ways to hop onto this ethical train is by investing in an ethical investment fund. Instead of picking individual companies to invest in, you're picking a basket that's already filled with hand-selected, ethically inclined companies.
Among these funds, there's a "sustainability ETF" or Australian ethical ETF. ETF stands for "Exchange-traded fund" , which is a basket of stocks you can buy in one go. And the "sustainability" part? That means the companies in this basket are involved in activities doing good for the planet.
Navigating the vast ocean of investing might feel overwhelming. But by anchoring on ethical investment, you're giving your money a real purpose. Simply by looking into the different ways to invest ethically, you've just added a compass to your toolkit. So as you take your next steps, remember that investing ethically is like planting seeds for a future we can all root for.
Conclusion
While ethical investing refers to matching our money with our values, there's no one-size-fits-all approach. What's ethical to you might look a tad different to someone else. With a variety of ethical investment funds such as sustainable funds, socially conscious funds, and impact funds, you have many options to choose from.
Remember, it's not just about the investment, but making them count for a cause you believe in. .
