When it comes to investing, many people don’t even consider the nature of their investments. Although the end goal remains, of course, to build a dynamic investment portfolio that grows and helps you build wealth, there’s a lot more to it than that. Or there can be, for those who want to do good in as many ways as possible.
How can this be done with investing? Thanks to the niche of ethical and sustainable investments, it’s a lot easier than you might think. In this guide, we’ll take a look at both types of investments and help you understand how to set up your dynamic portfolio with more than money in mind.
Ethical investing is the process of choosing your investment funds by comparing them to your ethical values. For example, you may find that a couple of the top investments on the market are funds from organizations that support issues or industries that you aren’t agreeable with, so you’ll switch gears and look for organizations that match your ethical standards.
Essentially, you’re aligning your investment portfolio with your moral compass in addition to choosing the most profitable investments or funds with the most potential. Thanks to technology, this kind of investing is easier and more lucrative than it ever has been.
This type of investing was originally rooted primarily in religion—people were very particular about their investments insofar as how the companies they invested with matched their religion. For example, Islamic banking discourages several investments in things like pork, gambling, alcohol, etc. By the 20th century, the focus changed to social views, and through the 1960s and 70s, it became an even bigger topic of conversation because people were fighting back against companies and organizations that didn’t have their own moral code.
In the 1990s, environmental responsibility was added to the ethical investing code, which also kind of overlaps with sustainable investing. Today, the primary focus remains on societal and environmental ethics or impact.
Sustainable investing refers to a strategy of choosing investments with companies that have eco-friendly and sustainable business practices in place. To make it easier, a lot of people use the acronym ESG, which stands for “Environmental, Social, and Governance.”
Environmental is the one type of sustainability that most people think of when they hear about this type of investing. Companies that are focused on helping the environment and that work with the sustainability of resources in mind will always be a good investment. Social sustainability or responsibility is about having good business practices, encouraging philanthropy and volunteerism among employees, and so forth.
The final element is governance, or how the company is managed. This is a behind-the-scenes look at leadership and the companies with the best corporate governance will be those who work efficiently, managing the organization in a way that ensures continuity for years to come. From how people are paid and how well the company works with the board to other governance issues, they all get considered here.
Essentially, while ethical investing is a more personal approach, sustainable investing is a look at the practices and behaviors of companies to choose the greater good for all.
A simple Internet search will lead to the discovery of funds and investments that are socially responsible or sustainable. For example, US News has a list they’ve posted that explores seven of the top socially responsible investing options right now. You can also speak to a financial advisor (if you don’t already have one, you can find one fairly easily) about the options for sustainable investments and ethical companies that fit your moral code.
Plenty of investing websites will provide lists of companies that are classified as ethical or sustainable investments. There are dozens of funds out there with more than $1 billion in assets just waiting to be added to your portfolio. And now that you know more about what you’re looking for, it should be easy to find what you need.
You might want to check out online stock screeners and company annual reports to learn more about ethical investments and company practices. Advanced stock screeners can easily help you identify companies that align with your ethics, which will make it much easier to find the best funds with which to place your money.
Ultimately, investing with ethics or sustainability in mind becomes even more personal than the standard investment portfolio. Therefore, it will be up to you to explore all the different companies and opportunities for investing that feels good to your conscience. The good news is that, as mentioned, you should have no trouble finding funds and organizations that align with your moral code—in fact, you might find you have more trouble narrowing the options down. Feel free to get assistance from a financial advisor in setting up your ethical investment portfolio.