Many of us make a conscious effort to do the right thing. We try to have our personal values guide our daily behaviors and decisions.
As consumers, we do this by using our purchasing power to support businesses that align with our value set.
As investors, we have a similar opportunity. You can design your portfolio to achieve financial returns while also helping to promote your ethical beliefs.
What is Ethical Investing?
Ethical investing is an umbrella term that describes any investment strategy that incorporates moral beliefs into the process. This approach includes socially conscious investing or socially responsible investing (SRI) and sustainable investing, as well as investing decisions that are impacted by other ethical factors like workers rights, animal welfare, corporate philanthropy, or the general social good.
Ethical investing is not about ditching personal gain to make the world a better place. It's more about strategic balance, and striving to achieve both your financial and ethical goals with one strategy.
Regardless of your specific areas of interest, there are a few common techniques that could help you start the process of ethical investing. Who says you can't hit your financial and ethical goals with one stock?
How to Start Investing Ethically
1. Define your ethical guidelines
If you're interested in ethical investing, chances are you already have a strong moral compass. And, you probably already have an idea of what you would like your investments to achieve, in terms of making the world a better place.
Either way, a good first step is writing everything down. Having a clear list of what you'd like to support (and avoid) with your financial resources will be helpful when you move on to finding the right investments for you.
So ask yourself: what are the types of things you want to avoid, and what are the things you'd like to invest in? Just for the sake of example, maybe you want to avoid investing in companies that utilize animal testing, and support companies that have fair labor practices and active community support programs. These choices are entirely up to you, so make a list that is based on your personal beliefs.
2. Research what you already own
Once you have a clear vision of where you'd like your investments to be, it's time to assess where you are today.
Start by researching the individual securities and funds you already own. The company's website is typically a great place to start. It's common for a publicly traded company to have different websites dedicated to consumers versus investors. You're likely to find most of the answers you're looking for within the areas focused on investor relations, but you should still check out the consumer site as well.
Investopedia gives a few examples of the types of information you can expect to see on an investor-focused website: community impact, commitment to workers, environmental responsibility, and human rights.
It's fairly safe to assume that any information about the positive practices of a company on their investor website is correct and up-to-date. But, we recommend taking this information with a healthy amount of skepticism. What could be missing here are the unethical practices that the company may not want to advertise to investors.
For this reason, a third-party opinion can be a great supplement to any information provided by the company itself. Using research from a reputable third party can help take some of the burden off of you. Here are a few reputable sources where you can seek deeper insights or a second opinion:
- The Global Reporting Initiative (GRI)
- The Forum for Sustainable and Responsible Investment
- The Social Funds Corporate Research Center
3. Create an asset allocation plan
Once you have an idea of whether or not you want to let go of any assets that don't match your ethical requirements, you can start to create a new asset allocation plan. If you're interesting in buying new ethical investments, this includes researching new stocks, mutual funds, etc.
If you're starting from scratch, look for a list of top stocks focused on your area of interest published by a reputable company. These short lists can be helpful in giving you some direction or a place to start your research.
4. Keep in check with your financial goals
Over time, both the ethical and financial value of your investments may change. A good long-term goal for you could be maintaining a comfortable balance between the ethical implications of your investments, and the financial returns you can expect. It's critical to create some sort of process of check-ins to keep tabs on your portfolio, and your own ethical motivations.
How do you balance your personal values with financial gain when looking to invest? Let us know your tips in the comments section below.