Ethical investing refers to investments that align with your values and beliefs. For example, you can invest in companies that treat their employees well, don’t harm the environment, and respect human rights. Ethical investors favor socially responsible businesses over those that pollute the environment or exploit workers.
Ethical investing is done through various investment funds that invest in companies that promote social responsibility and sustainable development. Ethics plays a vital role in every aspect of life. It refers to the standards of behavior that govern our actions.
Similarly, ethics should be considered when investing if you want to build a long-term ethical portfolio. In addition, it should be embedded in the very structure of your investment decisions. Here’s how to make ethics a part of your investing practices.
Creating an ethical portfolio requires you to have a set of values and beliefs that determine what business practices and actions are ethical to you. For example, you may choose your religious beliefs to guide you.
However, the effective application of this criterion to create an ethical portfolio can be difficult. This is because most companies are likely to do something that some investors don’t approve of. For instance, you may buy Treasury securities, but do you approve everything the government does? So, you need to know which policies and practices you can tolerate and which you cannot.
Ideally, there are winners and losers in a free market economy. But the issue when creating an ethical portfolio is how the company wins. For example, companies with monopolies in the industry function efficiently in different respects. However, they prevent healthy competition, and some investors may consider this unethical.
Also, if a company makes profits at the expense of its workers by exploiting, overworking, and underpaying them, or ignoring their rights, investing in such a company may be unethical to some investors.
Energy and manufacturing industries are considered destroyers of wildlife and nature through pollution and degradation of water bodies and forests. As a result, most of these companies have numerous environmental initiatives to replace what they are taking away from the environment.
And since they adhere to the government regulations for emissions, some investors may find it appropriate to invest in such companies. However, some investors will still find such companies unethical and opt to create an ethical portfolio with companies dealing with green or renewable energy.
Sin industries refer to those companies involved in activities considered immoral or unethical, like casinos, alcoholic beverages, tobacco, abortion, and pornography companies. Although some sin industries are involved in raising awareness of their products’ dangers, most ethical investors shun investing in them. So, consider which industries you feel are part of the sin industries and avoid them when creating your ethical portfolio.
Ethical investing is morally subjective, and there is no universal standard of what is an ethical investment. So, let your ethical portfolio be guided by your values, morals, and beliefs.