Learn the definitions of terminology such as ESG, SRI, and impact, as well as how to locate investment funds and trusts that align with your personal philosophies.

What exactly does it mean to invest ethically?

Investment practises that take into account values in addition to returns are collectively referred to under the umbrella term of “ethical investing.”

When picking companies and other assets, the phrase also refers to topics such as climate change, workers’ rights, gender equality, arms, tobacco, and gambling, among other things.

There are many different methods to ethical investing, each of which has its own label that you might discover on promotional materials for investments.

Sadly, there is no regulation of these labels, and their definitions can be quite broad:

Integrity (as applied to funds)

Using ethical or “values-based” screening, both positive and negative, to help sort investments is an effective strategy.

Socially Responsible Investing (SRI) also known as Sustainable and Responsible Investing

A diverse selection of investment techniques that place an emphasis on ethical, social, and environmental concerns as primary considerations.

Investing with a focus on Environmental, Social, and Governance (ESG)

Strategies that take into account the risks and possibilities associated to environmental, social, and governance issues, typically with the goal of helping to reduce risk.

Investing with an impact

investing in a manner that, in addition to generating monetary returns, generates quantifiable positive effects and advantages for society and/or society as a whole.

Dark green investment

A method that employs stringent screening and steers clear of any company or sector that does not satisfy its standards.

Investing in the light green

Instead than rejecting businesses that are thought to be harmful to society, the strategy focuses on finding organisations that are contributing positively to the world.

Investing in a sustainable future

focuses on environmental and social sustainability issues in order to assist in delivering excellent financial returns and addressing problems such as climate change.

Why should one invest morally?

Increasing the value of your savings without sacrificing your principles can be accomplished through the practise of ethical investing. It is possible to lose money, as is the case with any form of investment.

Traditionally, ethical investment solutions, such as funds, gave you the ability to steer clear of investing in firms or industries with which you disagree. This practise is referred to as divestiture.

Eliminating entire industries raises the possibility that you will miss out on prospects for growth and expansion. On the other side, if your portfolio does not include certain assets, such as oil, and the price of oil goes down, your portfolio is less likely to be negatively impacted.

Environmental, social, and governance investing (also known as ESG investing) is one variety of ethical investing. Proponents of this style of investing argue that it results in better-managed companies because of the additional investigation that is required.

You might also make the case that taking into account societal trends, such as a growing worry about climate change, will expose you to expanding sectors and new technology, such as renewable energy. This line of reasoning would be supported by a couple of different lines of evidence.

Although it’s possible that each business uses its own method to calculate ESG scores, we’ve described some of the factors that they might consider below.

Will investing in things that are good for the world make me money?

Potentially.

The value of an asset, like the value of any other sort of investment, is subject to ups and downs. If you want returns that are assured, the best option is to open a savings account.

Because there is such a wide diversity of ethical investments and strategies, it is becoming increasingly pointless to make a comparison between the performance of ethical and non-ethical investments.

Instead, you should investigate the specific organisation, fund, or investment trust in which you are considering investing.

There are several well-established ethical funds that can look back on several decades’ worth of growth; however, this is by no means a guarantee that they will continue to perform well in the years to come.

Do make sure that your portfolio is appropriately diversified to safeguard you from market downturns. Excluding companies from your investment strategy will make this more difficult, but it will not be impossible.

Which kind of investments are morally sound?

You might ask an independent financial adviser, often known as an IFA, to recommend assets for you for a fee if you don’t have much time or if you don’t have much expertise investing. Employ the services of a financial advisor who is a member of the UK Sustainable Investment and Finance Association.

Using a robo-advisor platform, which provides you with a portfolio of funds depending on your risk tolerance, is a less expensive alternative to traditional financial advisory services.

If you are comfortable making your own choices regarding investments, you have various options available to you, including the following:

Picking shares

You have the option of purchasing shares in specific businesses with which you are comfortable; however, constructing a diversified portfolio in this manner requires a lot of manual labour.

Remember that investment platforms typically impose transaction costs each time you purchase or sell a share, which means that continual fiddling can hurt returns and should be avoided if at all possible.

Investment vehicles such as trusts and funds

Investing in a large number of companies at once is made possible through the use of investment vehicles such as investment funds and investment trusts. They will implement one or more of the many different investment strategies that were outlined before.

You get something in return for paying a price. Actively managed funds, in which a fund manager or team selects the investments, typically have higher management fees than passively managed funds.

Funds that are passively managed typically have cheaper management costs, but their investment decisions are based on indices and/or data rather than human analysis.

Cash, bonds, and gilts

For investors who prefer to minimise their exposure to risk, there are a variety of fixed-income products available, such as ethical and green bonds.

Additionally, the government of the United Kingdom is going to start issuing green gilts, from which the proceeds will be used toward a variety of environmental programmes.

If you have any of your assets in cash, you should use our rankings to select a savings account with a financial institution that is more environmentally responsible.

Where can I find ethical investment advice?

Conducting some research is necessary if you want to avoid making investments that are outside of your comfort zone. Also, before you get started, make sure that you are prepared to make an investment.

1. Decide on a problem (or issues)

This will assist you in narrowing down the available investment opportunities. It is feasible to construct a portfolio that takes into account more than one concern at a time.

2. Opt for a strategy to take.

Do you wish to completely steer clear of particular market segments? Or would you rather invest your money in troubled businesses in the hopes that you can turn them around? Oder wollen Sie, dass Ihr Geld in die Suche nach Lösungen investiert wird? Again, you are free to combine these various strategies.

3. Investigate the foundation or trust.

You can do a search for funds or trusts using the search engine provided by your investment platform, by using Morningstar, or by using Fund EcoMarket, which is a search engine specialising in ethical funds.

If the fund’s objectives and how they are measured are not explained on the website of the fund or trust manager, you should get in touch with them directly. If you are interested in active funds, you should seek for companies that have an in-house research team and prior experience in this field.

Also check to see how the fund manager voted at the annual general meetings of the companies they managed.

Share Action publishes a lot of articles on this topic, and a lot of fund managers write up and publicise their voting decisions.

4. Create a portfolio that is diversified.

Don’t put all your eggs in one basket. Not only should firm shares be included in a well diversified and balanced portfolio, but also investments in a variety of markets, geographical areas, and asset classes. Click here to learn more about portfolios.