4 Ethical Investing Categories
Ethical investing is a type of investing strategy that considers the investor’s values before making investment decisions. Ethical investors seek financial returns while also making a positive impact on the world. There are various kinds of ethical investing. While it has a few sub-categories, most of these variants share the same concept: creating positive change by investing your money thoughtfully and intentionally. Here are some of the ethical investing categories.
Moral investing
This investing type is typically classified as having a “negative impact.” An investor would not invest in any industry or company that does not align with his moral values. For example, if an investor strongly believes that tobacco/liquor manufacturing companies are against their morals, they are unlikely to invest in such companies. By avoiding investing in companies that engage in practices you disagree with and investing in companies that support causes you to believe in, you follow an ethical investing strategy that adheres to your moral code.
Impact investing
Impact investing is quite what it sounds like investing in companies that have a positive impact on the world, which can include sustainable companies, being socially responsible, or having high ESG ratings. Non-profit organizations such as education and healthcare, and companies making strides in renewable energy and agriculture, are simple examples of impact investments. However, impact investing is more than that. It is the practice of investing money in companies that will benefit your wallet or earn you a lot of money. Impact funds are appropriate for investors who want to be socially responsible while gaining a good return.
Green Investing
Green investments, also known as sustainable investments, fall under the SRI umbrella, but they are far more specific. Green investing has recently gained prominence. These investments, which are often combined with socially responsible investing (SRI), are associated with a commitment to environmentally friendly business practices and natural resource conservation. Green investing encompasses activities such as natural resource conservation, the development and revelation of renewable energy sources, the implementation of clean air and water projects, and other environmentally conscious business practices. Because people’s ideas about what constitutes a “green investment” differ, what qualifies as a green investment can vary greatly.
Environmental, social, and governance (ESG) investing
Environmental, social, and governance investing, or ESG investing, seeks to maximize financial returns while taking three essential areas of a company’s environmental, social, and governance practices into account. When employing this strategy, ethical fund managers assign an ESG rating to a company based on the three areas mentioned. It is a departure from traditional investment research, which typically focuses on a company’s financials. For example, a company may give back to the community or enact racial and gender equality policies. They exhibit good social behaviors and would receive a high rating in the social category. Concerning the environment, fund managers will consider how much energy a company wastes or how its operations impact the environment. When evaluating governance practices, factors such as the capacity of shareholders to vote on crucial issues and the efficiency and transparency of reporting are considered. Several investment platforms offer ESG ratings on corporations you may be keen on investing in.
