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What is Ethical Investing?

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  • Written By: Victoria Blackburn
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 September 2016
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Ethical investing involves channeling personal investment funds into companies that match the investor’s moral, religious, social or even political views. It is a way of reconciling personal beliefs to an investment strategy so that the individual can be completely comfortable in how yields are made. For instance, popular black-listed industries that suffer from the disdain of the ethical investor include alcohol and tobacco companies, as well as companies involved in gambling, weaponry or abortion.

Ethical investing helps the investor take a stance on issues that have nothing to do with profit. It delves into the realm of morality and social ills. From the 1990s onward, ethical investing largely became associated with environmental preservation because of the rise of awareness in that area. However, investing with a conscience began much earlier than this era.

As far back as the mid-1700s, John Wesley, one of the founding members of the Methodist Church, spoke clearly on the matter of ethical investing. He advised that money should not be used in ways that could harm the health of neighbors and friends and spoke out against tanning industries and other chemical companies. Every century and even decade brings the focus to a different ethical concern that is in tune with the times. In the past, ethical investors have shied away from putting money into companies that supported apartheid, war, genocide, and even the exploitation of natural resources from diamonds to timber.

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To get started with ethical investing, investors need to highlight their principles. They should also make a note of the positive things they would like to see flourish in their society. This will provide a good starting point for a pool of possible companies in which to invest. The next step of course, is to assess these companies on the basis of normal investment criteria.

There is a popular debate on whether ethical investing must mean an acceptance of less profit or a less than average return on investment. For instance, green investing was once thought of as a personal sacrifice because it was felt that companies would have to spend too much of their profits to align themselves to cleaner technologies to be viable. However this fear, like many others, has been proven to be baseless as there are many companies that are both green and profitable. To make sure ethical investment decisions are positioned for the most profit, it is best do extensive research or consult a registered financial advisor.

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