What is Ethical Investing?
Ethical investing is the practice of utilizing one’s moral beliefs as a primary guide for selecting securities in your investment strategy. This form of investing centers on the individual’s personal views, often tailored to align with environmental, religious, or political precepts. While closely associated with socially conscious investing, ethical investing provides a more tailored and personal selection process for an investor’s portfolio.
Key Takeaways
- Ethical Investing Principle: Choosing investments based on moral or ethical guidelines.
- Performance Considerations: Ethical investing offers no assured performance benefits and might sometimes involve complexities.
- Avoiding Sin Stocks: Typically, ethical investors steer clear of so-called sin stocks—companies dealing with gambling, alcohol, tobacco, or firearms-related products.
- Holistic Evaluation: A thorough analysis should include assessing whether a company’s actions are consistent with its proclaimed ethical standards, along with a review of its financial performance forecasts.
Embrace Your Power with Ethical Investing
Ethical investing empowers individuals to direct their financial capital towards firms that reflect their own beliefs and standards. These principles can span environmental support, adherence to religious standards, or strong social and political beliefs. Investors may deliberately exclude industries or prioritize sectors based on these ethical guidelines.
Frequently, ethical investors shun sin stocks—those involved in activities considered morally or socially controversial, such as gambling or alcohol production. This choice is reflective of the investor’s moral compass but doesn’t always equate to a prediction about financial returns.
Adventurous investors should clearly document industries to avoid and areas of interest. This strategic documentation and focused research are crucial for determining if an index or mutual fund aligns with the investor’s values.
Historical Context of Ethical Investing
Historically, religion has heavily influenced ethical investing decisions. For instance, Quakers in 18th century America were the first to avoid investments in the slave trade, guided by their faith’s principles. Similarly, John Wesley, a founder of Methodism, advised followers against investing in industries harmful to others, like certain chemical production facilities.
In the Islamic community, ethical guidelines steer clear of investments in businesses related to gambling, alcohol, or pork due to religious prohibitions. Islamic banking principles inspire investment vehicles offered by the Amana Mutual Funds Trust, forbidding shares in companies engaging in forbidden banking practices like interest charging (riba) and speculative transactions (maisir).
From the 20th century onwards, social movements further shaped ethical investing. 1960s and ’70s America saw individuals align their investments with companies advocating for social equality, while recent decades have shifted emphasis more towards environmental issues, such as backing sustainable energy over fossil fuels.
How to Start Investing Ethically
Evaluating investments extend beyond their ethical dimensions. It’s critical to scrutinize the historical and prospective financial performance of the potential investments. This encompasses not just examining if a company’s declared mission statement correlates with one’s personal ethics, but also verifying if these are demonstrated through their actual practices. This diligence is crucial to avoiding instances where publicized ethics and actual operations, as seen vividly in the Enron scandal, dangerously diverge.
In summary, ethical investing allows you to align your financial actions with your moral beliefs, guided by thorough research and evaluation.
Related Terms: environmental investing, socially responsible investing, faith-based investing, Islamic banking.
References
- Natural Investments. “Quakers and SRI: Some Historic Perspective”.
- Discipleship Ministries, The United Methodist Church. "‘The Use of Money’ by John Wesley", download PDF, Page 6.
- Congressional Research Service. “Islamic Finance: Overview and Policy Concerns”, Page 1 (Page 4 of PDF).
- Saturna Capital. “Halal Investing”.
- Saturna Capital. “Amana Mutual Funds Trust: Equity Investment Process”.
- National Library of Medicine, National Center for Biotechnology Information. “Socially Responsible Investing: From the Ethical Origins to the Sustainable Development Framework of the European Union”.
- The Citadel. “Character and Ethics: The Enron Scandal”, Page 4.
