What is Ethical Investing?
292 reads · Last updated: December 5, 2024
Ethical investing refers to the practice of using one’s ethical principles as the primary filter for the selection of securities investing. Ethical investing depends on the investor’s views. Ethical investing is sometimes used interchangeably with socially conscious investing; however, socially conscious funds typically have one overarching set of guidelines that are used to select the portfolio, whereas ethical investing brings about a more personalized result.
Definition
Ethical investing refers to the practice of using moral principles as the main criteria for selecting securities. It depends on the investor's personal views and values, and is often used interchangeably with socially conscious investing. However, socially conscious funds typically have a comprehensive set of guidelines for portfolio selection, while ethical investing results in more personalized outcomes.
Origin
The concept of ethical investing dates back to the early 20th century when some religious groups began avoiding investments in industries contrary to their beliefs, such as alcohol, tobacco, and gambling. Over time, this concept expanded to include environmental, social, and governance (ESG) factors.
Categories and Features
Ethical investing can be categorized into various types, including negative screening, positive screening, and impact investing. Negative screening involves excluding companies that do not meet ethical standards, while positive screening selects companies that excel in social responsibility. Impact investing focuses on investments that can generate positive social or environmental impacts.
Case Studies
A typical example is the Calvert Fund, known for its strict ethical screening standards, excluding investments in industries like tobacco, weapons, and fossil fuels. Another example is Patagonia, a company that not only adheres to high standards of social responsibility in its operations but also supports sustainable development projects through its investment fund.
Common Issues
Investors may face challenges in defining and measuring ethical standards and balancing moral values with financial returns. A common misconception is that ethical investing necessarily leads to lower returns, but many studies show that companies adhering to ethical standards often perform well in the long term.
