Ethical Investing Explained

ETHICAL INVESTING EXPLAINED

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M A R K

L Y T T L E T O N

ETHICAL INVESTING EXPLAINED Ethical investing is the practice of investors using their own ethical compass as a primary filter for the selection of investment opportunities. Ethical investing hinges on the investor’s own views. The term is sometimes confused with socially conscious investing, but there are distinct differences. Socially conscious funds generally adhere to a principal set of guidelines in terms of investment selections, while ethical investing culminates in a more personalised outcome.

Ethical investors allocate capital to businesses whose values and practices align with their own personal beliefs, be those beliefs rooted in religious, political or environmental precepts. Some ethical investors eliminate entire industries based on their own ethical guidelines or over-allocate to other sectors. For example, they may opt

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to avoid ‘sin stocks’ in companies that are involved in what are traditionally regarded as immoral or unethical activities, such as firearms, alcohol or gambling.

Careful research is required to determine whether investments or industries align with an ethical investor’s beliefs, particularly when it comes to investing in a mutual or index fund.

Religion is often a strong influence in investment decisions. The earliest recorded example of ethical investing in the US was the restriction of 18th Century Quakers from investing in the slave trade.

Another example of religion influencing investment decisions can be seen in Islamic banking, which shuns investments in gambling, pork, alcohol and other forbidden items.

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