Ethical investing is an investment strategy that focuses on uniting consistent returns with supporting companies that are aligned with your personal values.
While some investors mistakenly believe ethical stocks represent charitable donations with weaker returns, a strong and sustainable ethical investment strategy can provide a foundation for consistent and measurable portfolio growth.
According to a recent survey of UK investors, 67% of respondents want to see their money being used to positively impact the planet and society, with 63% of 18 to 34-year-olds keen to invest in projects that tackle climate change.
One of the most effective ways to care for your ethics when it comes to investing is to look to ESG stocks. The term ESG stands for Environmental, Social, and Governance, and focuses on companies that have been committed to caring for the ecosystem, equal opportunities, and generating a positive community impact, among other initiatives.
But how can you incorporate ESG strategies within your portfolio? Let’s take a deeper look at five key ways to take on ethical investments in a way that can grow your wealth:
1. Choosing the Right Investments
If you’re picking the stocks you wish to add to your portfolio with their ethics in mind, you should be ready to scrutinise their ethical standards, as well as keep their historical and projected performance in mind.
Reviewing a company’s history and finances should be an essential consideration, and you’ll have to keep an eye out for tangible evidence of ethical initiatives. Whether these are showcased on the company’s website or news stories, gaining a clear understanding of a firm’s practices can tell you more about whether they align with your beliefs.
2. Looking to Ethical ETFs
It can be difficult to identify ethical stocks at scale while learning which ones are suitable for your portfolio, but looking to exchange-traded funds (ETFs) can help speed this process up.
ETFs and tracker funds are generally cheaper than active funds because the investor isn’t paying for the stock-picking skills of a fund manager to adapt their investments.
Ethical ETFs, like the iShares ESG Aware MSCI USA Growth ETF (EGUS), Stance Sustainable Beta ETF (CHGX), and Nuveen Winslow Large-Cap Growth ESG ETF (NWLG), have all helped investors to access carefully curated stocks while filtering out so-called ‘sin stocks’ that may be involved in unethical activities such as weapons and tobacco.
3. Find Ethical Investment Funds
Ethical funds are excellent ways for investors to begin earning passive income from portfolios that share the same values as they do.
Crucially, rules implemented by the Financial Conduct Authority (FCA) have stipulated that firms providing ethical investment funds must ensure sustainability references are fair, clear, and not misleading. The FCA’s rules have also suggested that any ESG claims are proportionate to the sustainability profile of the product or service.
This means that investing ethically can be relatively straightforward to get involved in for investors, without the need for scrutinising each stock.
4. Be Wary of Greenwashing
While you may be doing your own research when it comes to adding ethical stocks to your portfolio, how can you be sure that they’re as ESG-focused as they claim to be?
Greenwashing is a growing problem when it comes to sustainable investing. Companies can spend a significant amount of money on marketing and the use of buzzwords like ‘sustainable’ and ‘organic’ as a means of boosting their ESG credentials without having any substantial evidence that they’re as ethical as they suggest.
When companies engage in greenwashing, their ethical claims are largely superficial, and their practices may be contradictory to any kind of suggestions regarding sustainability.
With this in mind, it’s certainly worth looking below the surface when picking stocks to build your portfolio. Check whether independent third parties are corroborating ethical claims or whether all ESG claims are emanating solely from the firm’s own marketing department.
5. Check Your Manager’s Ethical Considerations
If you’re looking to incorporate ethical investments into your portfolio, you must have an investment manager who can provide positive and negative screening to ensure that your selections can grow your wealth over time.
Positive screening involves creating a portfolio that suits your financial goals and ethical policies, helping you to select the best possible stocks to match your needs.
To support a strong, positive and negative screening, it’s worth choosing a financial advisor who is knowledgeable about ethical investing and who understands your values. It may be worth checking whether your chosen advisor has relevant experience, credentials, and a strong track record of helping clients achieve their ESG goals.
Investing on Your Terms
It can be highly rewarding to invest based on your ethics and values, and building a portfolio that cares for the causes that are close to your heart may create a greater sense of satisfaction from your investments.
With this in mind, look to how you can enter the world of ethical investing, whether it be through picking your own stocks and shares, or embracing investment funds, and work on scrutinising the credentials of the companies you add.
Ethical investing, at its best, can help you to feel fulfilled while reaching your financial goals. By embracing ESG the right way, you can grow your portfolios in a more sustainable manner.
The post Caring For Your Ethics: 5 Ways to Take on Ethical Investments appeared first on Trade Brains.