Investing money is not new and it has been advised by our parents so often. Investing money is simple for many of us but at the same time, it is very confusing for many people. In the modern world, we have many ways to invest money like, stocks, funds, bitcoins, fixed deposit schemes, etc. Having so many options gives us the freedom to chose that fits best in our investment goal but it also creates confusion.
Just to refresh the facts for many of us;
Investing is an act of putting money in financial securities, shares, properties, or commercial ventures with an expectation to generate profit in the future.
There are many types of investing and Ethical Investing is one of them. Do you know about ethical investing or heard about it? Probably NO! because people hardly discuss about it either on business media channel or investment gurus. However, I find Ethical Investing interesting, and therefore, I will be explaining everything you should know about ethical investing, in this article.
What Is Ethical Investing?
Ethical Investing is a process of screening the investment instruments like financial securities, shares, companies, or funds based on the personal ethics and moral principles. It is fully based on the individual believes and screening criteria may differ from one ethical investor to another.
In a nutshell, ethical investing is the process of investing in companies or organizations whose values, believes or moral principles are aligned with investor’s values, personal believes, and principles.
Ethical Investing the best way to support companies that are working for social welfare ethically, causing no harm to the environment and making the world the best place to live.
The Purpose Of Ethical Investments
Even though the purpose of investing money remains the same for most of us but there is a portion of investors who don’t want to invest in companies that are engaged in unethical or immoral activities. They simply do not want to contribute to such a company’s growth. They prefer to stay away from the sin stocks.
What are Sin Stocks?
Sin Stocks are listed companies that are involved in activities that are considered as unethical or immoral. Such activities include tobacco business, liquor manufacturing, gambling business, or weapon manufacturing. Such companies are considered to be not helping in word’s peace and welfare.
The key reason people look for ethical investment because they don’t want to be part of any unethical activities by any means due to various reasons. They like to have a good feeling after investing, therefore they prefer ethical business over the return on investment.
Screening The Ethical Investment Instruments
As I mentioned before, even though the ethical investment looks straight forward but it is difficult to build a foundation or base for selecting an ethical investment instrument. It is because ethical investing means different things to different people.
What is ethical business to me, you probably don’t find so ethical business? Therefore, there is always confusion however, the following are some possible criteria to screen ethical investments for you.
- Based on the company’s impact on nature i.e. carbon emission and natural resource wastage.
- Companies that are involved in manufacturing military weapons.
- Individual’s religious values (Christian, Catholic, or Islamic).
- Companies that are manufacturing alcohol, tobacco, and unhealthy food items.
- Company’s that could impact on the social life like gambling or gaming companies.
It is not easy to find an ethical company just by knowing the overview of it. You can review the company’s website, news and look for the article in newspapers to know more about the company’s business. It is only possible If you are up to date about any news related to the company you are planning to invest in.
There were only the common possible criteria to screen the ethical investments however, people have other criteria too.
Advantages Of Ethical Investing
People are considering ethical investment approach these days and following are the key reasons behind it;
1. Feels Socially Responsible
Ethical Investment or Social Responsible Investing makes to feel good about your investment. The reason being, the impact of your investment on society and the environment. The company in which you have invested shares the same value and ethical morals as you.
You feel responsible and happy by contributing your part in ethical companies for making big changes.
2. Promotes Ethical Business Practices
By investing in ethical businesses and filtering out unethical businesses, you are promoting ethical practices among companies. Investing in good company’s feels good hence many investors consider only ethical companies for investment.
This promotes good and ethical business to grow and inspire other businesses to follow the ethical approach. Business following the ethical and moral practices is good for everyone.
3. Good Future Prospects
Since more and more people are considering the ethical business for investing, the chances are high that such companies will perform better in the future. This will directly impact the investor’s profit in the future.
Therefore, there is no harm in shifting investing approach towards the ethical investing for the better cause.
Since we know the key advantages of ethical investing, let’s put some light on the disadvantages of ethical investment.
Disadvantages Of Ethical Investment
1. Less Investment Options
Each person might have his or her list of filters to screen the ethical companies to invest. But, when you apply all those filters to screen the ethical company that matches your values and principles, you left with very less options.
This leads to undiversified investment that could result in losses if the company goes into losses.
2. Time Consuming Screening Process
As I said before, finding a 100% ethical investment instrument can be a tedious process. You need to do deep research and analysis to find an ethical company to invest in. It is very difficult to find out what’s happening behind the wall.
We only know what is mentioned on the company’s website and what is published in newspapers or media. They might not fully following the practices that they are claiming. Therefore, you need more time, energy, and analysis to find a good ethical company for the investment.
Ethical Investing is a process of selecting companies based on their ethical practices, moral values, and principles.
There is no guarantee of the performance from ethical investment.
Ethical Investors don’t invest in companies that are involved in illegal practices, alcohol, gambling, smoking, or weapon related businesses.
Ethical investors stay away from the Sin Stocks and prefer moral and social values over profits.
I hope, you found this article helps and the difference between Investment and Ethical Investment is clear for you. Let me know if you have any confusion in the comment section. Do share your story about ethical investment.
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The following are some of the frequently asked questions related to ethical investing.
Is Fixed Deposit an Ethical Investment?
Since we open a fixed deposit account in Bank and they use our money for their investment. Therefore, we cannot say that the fixed deposit scheme is an ethical investment. We never know in which business the banks are investing our money.
What are the types of Ethical Investment?
The different types of Ethical Investing would be those made on different values such as social, moral, religious, environmental values.
What Are Sin Stocks?
Sin Stocks are the listed companies that are involved in business activities like, tobacco, gambling, gaming, alcohol, weapons, etc. Such companies are usually avoided by ethical investors.
What is an Ethical Investor?
Ethical Investor is a socially responsible investor who invests only in ethical businesses and promote them. Ethical investors avoid Sin Stocks and invest in businesses that are aligned with his/her moral values, ethics, and principles.