Ethics have been the focus of debate since at least the days of Socrates. The fact that they are still hotly debated is indicative of just how subjective the issues can be. When it comes to ethical investments, which have been gaining popularity in the last twenty years, the debate as to what exactly is an ethical investment rages on. Ultimately it is down to your own principles and judgement as to what you feel is, or isn’t, an ethical investment. Once you’ve made that decision the only problem that remains is to find a fund that matches those principles. Although that can be easier said than done, understanding how investment funds operate from an ethical standpoint can help.
How Are Ethical Investments Selected?
Different investment funds, providers and managers will, just like an individual, have different views on what is or isn’t ethical. Some will view a diamond mining company that shoots its workers on a regular basis ethical if they power their head office with renewable energy. Thankfully, other funds (most in fact) probably won’t! Each fund will effectively draw the line between ethical and unethical practices on different criteria. Many funds will avoid industries which involve tobacco production, gambling or pornography; these are not only ethical but moral judgements and for those whose principles include a strong element of right and wrong, they may be the most suitable. Other funds have a different bias and are keen to support firms that operate in specific industries that have a positive image; in this group you’ll normally find renewable energy generation or technology, waste management and recycling companies.
Other factors that may tick the ethical fund box include positive attitudes to corporate responsibility, social engagement and workers rights. This latter can mean that companies in sectors that you may not approve of are included – a good example would be a diamond mining company that builds schools, installs improved housing and actively supports its workforce. This type of investment may not be suitable for everyone but, by encouraging positive action within what may be perceived as a negative sector, there can be a strong argument for investment.
Professional Help Essential
Investing in ethical funds is at least as complex as investing in any fund, if not considerably more so. An Independent Financial Advisor (IFA) is more essential than ever in this case and you should choose one who not only has experience in the ethical investment sector, but also understands your environmental concerns, social concerns or religious background. By discussing these matters with an IFA they will be able to establish investment criteria based on your own ethical stance, which should enable them to screen appropriate investments and discard ones that don’t match your views.
Open Minded Approaches
As with any investment, ethical or otherwise, your attitude to risk will be another significant factor. In addition, the term of investment and the returns that you need to achieve in that period will be important parts of your decision. Ethical investing can mean making some difficult choices, or modifying your expectations (or your morals). It can be important to look into investments with an open mind and to understand that sticking strictly to your morals may not always be possible. Finding a fund that strictly matches all of your requirements is not always possible and being open to relaxing your principles, at least a little, can be helpful. If this approach is unacceptable (and on some issues that’s understandable) then accepting lower returns or higher risk investments may be required.
Samantha Smith is a vivid blogger who likes to blog about investments, stock markets and helping people. She has been blogging for Emerald Knight Consultants for quite sometime.