How to Do Ethical Investing in 2023?

Understanding Ethical Investments

Ethical investments, in essence, are designed to bring about positive global change, all the while generating profitable returns. These are investments that align with your social, moral or religious values. The businesses underlying ethical investments are typically engaged in initiatives such as combatting climate change, upholding workers' rights, or refusing involvement in controversial areas like animal testing, tobacco, arms production, and gambling.

As Rob Morgan from Charles Stanley Direct, an investment platform, explains, ethical investing goes beyond pure financial gains; it's about enabling our investments to contribute to a larger cause.

Is Ethical Investing Possible?

Absolutely! Not only is ethical investing possible, but it has also become significantly more accessible due to the increasing range of ethical and sustainable investments available compared to a decade ago. Remember though, the concept of ethical investing is subjective; it differs from person to person, so there isn't a universal standard.

Under the broader ethical investing umbrella, you'll find concepts such as Socially Responsible Investing (SRI), Environmental, Social and Governance factors (ESG), Impact investing, and Sustainable investing. These labels can be confusing, but the essential takeaway, as Morgan points out, is that you're selecting investments that have a beneficial global impact.

Debunking the Myth: Do Ethical Funds Underperform?

There's a prevalent myth that ethical investments compromise on financial growth. However, there's no concrete proof that ethical funds underperform. Quite the contrary, several ethical funds outperform many of their non-ethically screened counterparts. It's important to note that a variety of factors influence the performance of all funds. So, when considering actively managed ethical funds, you should examine elements such as the fund's clear investment strategy, the tenure of the main fund manager, and how the parent group views this investment type.

The Growing Sphere of Ethical Investing

Though the ethical investment sector is still relatively nascent compared to traditional investments, it's expanding at an impressive pace. From April to June 2020, ESG-principled funds attracted $71.1 billion globally in net inflows, reports research firm Morningstar. This influx brought the total assets managed in ESG funds to just over $1 trillion. Notably, ESG fund inflows accounted for nearly a third of all European fund sales.

In response to this upward trend, the investment industry launched over 70 new ethical funds in the first quarter of 2020 alone, bringing the total count to more than 2,500.

Various Paths to Ethical Investing

The surge in ethical investment products has broadened the options for investors to decide how their money is allocated. Typically, you would utilize an investment platform to purchase shares or funds. Once you've chosen your preferred platform, you have several options for ethical investing.

Direct Stock Selection

You can craft a personalized ethical portfolio by purchasing shares or bonds yourself, aligning with your beliefs and values. This method can be time-consuming and requires regular monitoring, but it allows for a truly custom investment portfolio matching your ethical standards.

Investment Funds

Alternatively, you could opt to invest through an ethical fund from an asset management company. A fund manager will focus on avoiding unethical companies and seek out the best socially responsible investments. They evaluate companies based on multiple aspects like workforce diversity, transparency, and carbon footprint.

Ethical ETFs

Investing in a "passive" exchange-traded fund (ETF) is another avenue. An ETF mirrors a stock market index's performance. They are more affordable than active funds since you're not paying for a fund manager's stock-picking expertise. An ethical ETF filters out those index companies involved in certain activities, like weapons and tobacco, and often leans towards companies that score high on ESG metrics or have a low carbon footprint.

How to Begin Ethical Investing

Your investment choice, whether in a company directly by purchasing individual shares or through a fund, depends on various factors, such as your investing confidence and experience, the duration of your investment, the size of your investment portfolio, and your risk tolerance. Here are five tips to guide your journey into ethical investing:

1. Identify your values: What industries align with your values? What ethical measures matter to you? These are the questions you need to answer before deciding where to invest. Your ethical standards may not align entirely with a particular fund or company, so keeping an open mind is crucial. Decide whether you want to apply an ethical investment strategy across all your investments or just certain areas.

2. Assess your current investments: If you're already investing, perhaps through a pension, check if the ethical characteristics of your current investments align with your values. If not, consider whether you need to change your investments, funds, or investment management provider.

3. Conduct thorough research: Identify those holdings, funds, providers, and professional services that align with your ethical choices while still meeting your broader financial objectives. Some prefer ready-made portfolios due to the convenience, but you must be comfortable with someone else making ethical decisions on your behalf.

4. Understand your investment options: You can make ethical investments in various ways while protecting your investment from taxes, including using a stocks and shares ISA and your pension. A self-invested pension (SIPP may provide you with the flexibility to select the funds that meet your ethical considerations.

5. Review regularly: Just like any other investment strategy, regularly review your ethical investments. Ensure that they remain aligned with your values and that they are performing well. Companies and their practices may evolve over time, and new ethical investments may become available.

Interested in climate change? Choose EV Stocks as your ethical investment!

Climate Alterations: A Grim Reality

Our world is grappling with the stark reality of climate change. NASA's reports paint a worrying picture: over 150 billion tons of ice vanish from Antarctica every year. To add to the concern, Europe experienced its hottest summer on record in 2022, with wildfires ravaging large swathes of the continent. There are numerous ways we can wage the battle against climate change, and for many in the United States, their weapon of choice is the electric vehicle (EV). EVs present an opportunity for the everyday American to cut out a significant source of carbon emissions from their routine activities.

The Investment Shift Towards Electric Vehicles

This growing consumer interest in EVs hasn't escaped the notice of savvy investors. By incorporating EV stocks into their investment portfolio, investors can play a pivotal role in advancing the transition to zero-emissions vehicles. At the same time, they stand a good chance of amplifying their investment returns. As a transformative innovation, the majority of leading EV companies fall under the category of growth stocks. Several of these are still quite some distance from reaching profitability, thus posing substantial risks to investors. However, with a clear understanding of these risks, Forbes Advisor has compiled a list of ten EV stocks we consider to be the best options currently available in the market.

Noteworthy Electric Vehicle Stocks

Conclusion

In summary, ethical investing allows investors to combine their personal beliefs and values with their financial goals. It's a way to invest in a better future for ourselves and the planet, along with the prospect of generating returns. While ethical investing can be complex and sometimes subjective, the rapid growth in this space offers more choices than ever for the ethically-minded investor. Keep in mind that you should consider seeking professional financial advice if you're unsure about any aspect of investing.

Remember, investment carries risk, and you may not get back what you put in. As with any investment, it's essential to do your homework and understand what you're investing in before parting with your money. By keeping informed and staying true to your values, you can navigate the landscape of ethical investments effectively.