You’ve probably heard of ethical investing and might even be vaguely intrigued by the concept … while still wondering exactly what it is. For many Queenagers, investing isn’t just about financial returns; it’s also about aligning our money with our values. Ethical investing offers a compelling way to ensure our investments reflect our principles and contribute positively to society and the world. As part of our Shape Up Your Finances package sponsored by AJ Bell Money Matters, this introduction to ethical investing explores the principles and how to put your money where your heart is.
Whether you’re looking to make a difference or simply want to invest with a conscience, you’ll be able to approach ethical investing with confidence and clarity.
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Before we get into the why’s and how’s of this type of investing, it’s important to say that you need to make sure you have sufficient funds to meet your own future needs first. Whether that’s to cover travel plans, living costs, rent, mortgage payments or repayment, medical costs or the outlays associated with later life care.
If you have a healthy pension fund and savings to cover your future outgoings, there are numerous ways to save money for your legacy. Your starting point needs to be to think not only about what you want to do with the money allocated to your legacy beneficiary but also why you want to do it.
What is ethical investing?
Ethical investment is a great legacy as it’s focussed on long-lasting tenets: Stewardship, green investing, social impact and social responsibility, and the environmental, social and governance criteria (ESG) of the companies invested in.
Pinpointing the type of things you want to invest in
If ethical investing is important to you, you’ll naturally need to find investments that fit the bill. Think about what matters to you. Do you want to make a positive change via your investments? If so, how? This means looking at how the company/companies or fund affects the environment or its social impact. Do you want to actively support the work some companies do, such as creating renewable energy sources? Or are you interested in companies that have a high percentage of women on their board or have training programmes for returners?
Alternatively, you may prefer to avoid certain things, like fossil fuels, tobacco, gambling or arms companies.
“It’s an area where it pays to do your research as there is a lot of information out there,” says Charlene Young, pensions and savings expert at AJ Bell. “It’s about looking at what is important to you and whether the fund echoes that sentiment.”
Learn more about how to be an ethical investor with this AJ Bell article.
2 approaches to your investing
You have the option of holding direct shares or bonds, where you invest yourself in the companies or bonds – or outsourcing to a professional who manages a collection of investments via a fund.
Passive vs active ethical investing
If you enlist the help of a professional as in the second option, you can choose to invest in a lower cost “passive” fund like an ETF. An ETF, or exchange traded fund, is a basket of shares that’s traded on the stock market like an individual security. ETFs simply track the market, which makes them passive. They are diversified, low-cost and tax-efficient.
With an “active” fund, an investment manager manages the investments with the aim of beating the market. This type of investment has higher fees but could provide better returns.
How to find investments that support women
One thing we feel strongly about here at NOON is supporting women … and that’s something you can also do with your investments.
To ensure that the company you invest in employ good workplace practices, look at its annual reports and disclosures to check their gender pay gap, as well as how many women are in senior positions in the business or the board.
Also, does the company give money to organisations that support women in business or female entrepreneurs? If you prefer to invest via funds, check the fund’s literature to see if this is an objective or consideration for the fund manager.
How to avoid greenwashing
Because so many people are interested in ethical investing, companies are eager to highlight their ethical and sustainable practices and products. But beware of “greenwashing”, when a company emphasizes the sustainable and positive only as a way to eclipse its environmentally or socially damaging practices. Don’t be lulled by imagery or reassuring, vague language. Dig into the ownership, the annual reports and the news about the company. Also be aware of corporate carbon offsetting, which some people believe simply kicks the problem down the road.
Does ethical investing make money?
According to a 2023 “Sustainable Reality” report from the Morgan Stanley Institute for Sustainable Investing, sustainable funds had a median return of 6.9%, beating traditional funds’ 3.8%.
As with any investing, your money is at risk when put it into an investment. Look at the individual companies and funds, read the latest news about them and the sector and ensure that your overall portfolio is balanced in terms of risk. <Find out more about risk in this video from our Understanding Risk webinar.>
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