A large number of investors are keen to ensure their investments positively contribute to our world and its people. Such an approach is encapsulated in the concept of ethical investment or socially responsible investment, where investors probe deep into a company’s profitability strategies. Firms that gain their profits through environmentally damaging practices or show a disregard for social responsibilities may encounter difficulties when trying to source public funding.
So, what does “ethical” mean?
Indeed, the term “ethical” is subjective. One ethical fund manager might deem tobacco and gambling as unethical yet perceive alcohol as acceptable. Conversely, another ethical fund could be hesitant to invest in banks that offer loans to companies causing environmental harm, such as those in the coal mining industry.
The crucial aspect is your personal definition of “ethical” as an investor. If you’re considering an ethical investment, it’s not only the financials of the prospective investment that you need to comprehend but also whether the core businesses and their operations align with your ethical standards.
Though it is challenging to establish a precise guideline for ethical investments, a few core values are commonly shared among many:
- Prevent causing illness, disease, or mortality.
- Refrain from causing harm or damage to the environment.
- Treat people with respect and dignity.
In Australia, several prominent investment names are included in the list of ethical fund providers. While some ethical funds have demonstrated positive results, as with any share-based investment, the emphasis is on long-term investing and the proficient management capabilities of the fund manager.
What about the associated risks?
Keep in mind that if a fund manager’s selection of stocks is limited due to ethical considerations, this could introduce additional risk and volatility.
If you’re intrigued and want to learn more about ethical investing, get in touch with your licensed financial advisor.
The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial adviser to consider whether that is appropriate having regard to your own objectives, financial situation and needs.