There are many ethical considerations when it comes to investing. While the primary goal of investing is typically to make a return on money, investors should also consider social and environmental effects of their investments. There are some concepts and frameworks that can help guide ethically responsible investing.
💡 Fun Facts…
| 1) Over $30 trillion worth of assets are in ESG funds (environmental, social, and governance) |
| 2) The first “ethical” fund was created in 1971 |
| 3) The largest ethical fund has $100 billion is assets under management |
One such idea is Socially Responsible Investing (SRI) which has become increasingly popular in recent times, as the concept of aligning personal goals with personal values has gained traction. SRI guidelines call for investments in vehicles that align personal values with financial goals. Investors prioritize companies that emphasize environmental and social responsibility through sustainability and ethical practices.
An important ethical consideration when it comes to investing is the environmental impact and policies of the companies you’re investing in. If this is a big issue for you, make sure to invest in companies and funds that make sustainability a priority. This can include renewable energy companies, companies that try to minimize their carbon footprint and those that contribute financially to green efforts. Conversely, you would want to avoid investments in companies that negatively impact the environment through greenhouse emissions, deforestation or the making of environmentally unfriendly products.
Similarly, another ethical concern is companies’ effects on social issues and social responsibility. Issues such as fair labor practices, diversity, inclusion, employee benefits and well-being, human rights, social equality and treating customers fairly should all be considered. If social issues are important to you, invest in companies and funds that focus on these things. Related to this is how your investments affect local communities. If this is a factor for you, then look for companies that engage in community involvement and give back to local communities. These efforts can help improve local economies and grow social responsibility. Companies that do not engage and consider their impact on local communities should be avoided.
There are several frameworks that have been developed for companies to practice social responsibility. These include Principles for Responsible Investment (PRI) and environmental, social, and governance (ESG). PRI provides six principles to encourage investors to look at an investment’s ESG as outlined below. ESG reporting is used by stakeholders to assess the risks and opportunities related to a company. Investors help investors make informed decision regarding a company’s policies. Stakeholders such as customers, suppliers, employees and leadership will all look to ESG. The six principles of PRI are:
Principle 1: ESG will be used to make investment and growth decisions
Principle 2: Owners will be active in incorporating ESG considerations
Principle 3: Any investment will be scrutinized for ESG practices
Principle 4: Encourage acceptance and use of these principles to the investment community.
Principle 5: Work together to implement ESG policies
Principle 6: Report on our progress and initiatives related to these issues.
The Global Reporting Initiative (GRI) provides a guideline for companies to report their progress and achievements across social and environmental issues. GRI provides a framework for a company to develop a sustainability report and guides them through the process of collecting and information in a structured way. It is widely used throughout the world from large multinational companies to small and medium sized businesses. 75% of the World Fortune 250 claim to have used this tool. It is not all subjective though, and can use financial measures to evaluate performance. The Dow Jones Sustainability Index (DJSI) evaluates companies across a variety of environmental, social, and governance factors.
OPINION
Ethics have been an increasingly important issue that many people are thinking about and addressing in all aspects of their lives. Many people are concerned about how corporations and businesses behave. When it comes to investing, you can make an impact by choosing your investment decisions using ethical considerations. When you choose to invest your money with companies that you feel are “doing the right thing”, you are making a statement about your own personal beliefs. It is important to make decisions not just based on what will give you the highest return, but also on your own personal ethics code.
