How can you invest ethically?

The novice investor faces many issues when entering the world of investing. Most of these will be technical in nature, but investing sometimes raises ethical questions as well. With ethical investing, you take responsibility for the social situation. But how can you actually make ethical investments?

What is ethical investing?

Ethical investment is often a synonym for sustainable investment, or socially responsible investment. This is a form of investment that takes the consequences for people and their living environment into account. The ethical investor therefore looks for investments that make a positive contribution to this goal. The return alone is therefore not leading in making investment decisions.

Sustainable or ethical investment once started from charities and churches. Since the year 2000, however, institutional investors and investment funds have also embraced it. You can also invest ethically by selecting a social responsible investment fund.

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Ethical investment

How can you invest ethically yourself?

If you want to invest ethically, you can do so in two ways. We will briefly discuss how you can best invest ethically yourself.

Buying shares yourself

You can choose to buy shares in companies that make a contribution to society. This is a lot of work: you have to examine carefully whether the company does not apply shady elements in its business operations. Moreover, it is important to examine the vision of the company: even when you invest ethically, you still want to make money in the end.

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Investing in a fund

If you do not have enough time to research all companies yourself, but still want to invest ethically, you can choose to invest in a fund. By buying an ETF that deals with sustainable business practices, you can benefit from the developments in the stock market in an ethical way.

However, it is advisable to carefully research the fund you want to invest in. Not every party has the same definition of ethical. For example, a fund can decide to avoid investments in environmentally polluting companies but still invest in a weapon producer.

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Excluding & including social sustainable investments

If you want to make sustainable investments, it is important to know that sustainable investments can be shaped in two ways.

Some funds exclude non sustainable-investments without putting the focus on social responsible investments. Other funds choose to only include sustainable investments in their investment portfolio. By choosing a fund that actively invests in socially responsible initiatives, you avoid investments that carry negative consequences borne by future generations. As an ethical investor, you protect our vulnerable world for future generations.

Anyone who invests in a company ensures that it can carry out its business activities. This means that the investor has a certain influence. By investing sustainably, the investor can make positive use of this influence. He makes the world more liveable by investing in stocks and bonds of companies and countries that respect people and nature. When more people decide to only invest in socially responsible companies, more companies will follow in their search for financing.

Two methods of ethical investment

If you want to invest ethically, it is important to know that there are two ways of doing so. The first method excludes unsustainable investments. This means that investments which have a negative impact on society are excluded. Think for example of cigarettes or weapons.

Other funds have a more positive approach. They focus entirely on funds that make society more sustainable. Think for example of companies that contribute to the quality of the environment by producing windmills or solar panels.

An ethical investor therefore excludes investments whose harmful consequences will be borne by future generations. You are not part of the problem, but part of the solution!

Determine what it means to you

There is no ready-made package for the ethical investor. Ethics itself is subjective. Whether something is good or bad depends entirely on your perspective. Therefore, consider for yourself what you think is important. Some investors for example do not want to invest in alcohol products, while others have no problem with that.

There are no clear regulations for funds on what is considered ethical or non-ethical. It is therefore wise to carefully consider what the investment funds invest in. After all, what might be ethical for a fund might not be ethical to you!

Exerting influence

Anyone who invests in a company ensures that it can carry out its business activities. This means that the investor has a certain influence. By investing sustainably, the investor can make positive use of this influence. He makes the world more liveable by investing in shares and bonds of companies and countries that respect people and nature.

When people switch more often to ethical investments, banks will pay more attention to this. After all, banks want to attract customers, and when the demand for these types of financial products increases, more and more attention will be paid to them.

Is ethical investing disadvantageous?

We have now listed many of the good aspects of ethical investment. But are there any disadvantages? Many people have the idea that investing in an ethical manner results in lower returns. However, this is not the case. Research often shows that sustainable funds perform better than non-sustainable funds.

This may be because ethical companies are also less affected by scandals. Scandals are expensive: companies have to pay fines and their reputations are often dented. It is therefore certainly attractive to invest in companies with a good reputation.

With sustainable savings products, the interest rate is often somewhat lower. However, when you put your money in a green savings account, you can sometimes use attractive tax benefits.

Of course, the range of ethical investments is also more limited. This is because many investment products are not fully ethical. However, if you consider the future of our beautiful planet important, it may be worthwhile to do some extra research. In any case, ethical investing does not have to cost you anything.

How is sustainability promoted?

If you invest sustainably, ethics are important to you. You will never invest your money in stocks of companies that use child labour or forced labour, or produce weapons. In addition, you will never invest in governments that violate human rights or deprive people of education.

On the contrary, you will choose to invest in stocks of companies that are involved in sustainable energy, or that guarantee clean water. Your financial support will go to companies that, for example, provide microcredit to small entrepreneurs in less developed countries, or governments that protect the environment.

ETFs focusing on ethical investments

There are ETFs (these are exchange-traded funds) that invest in a selection of ethical stocks. For example, a fund that invests in companies involved in green energy. By investing in an ethical ETF, you can spread your risks more easily, and you are less likely to lose a lot of money with your investment.

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Alex Mostert Avatar

When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about! Don’t hesitate to leave a comment under this article.

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