Ethical investing is very much in the eye of the investor and there is no right or wrong way to invest ethically. Some people prefer to negatively screen stocks, which is excluding stocks such as tobacco, firearms, animal abuse etc.
The other way is positive screening where you invest in sustainable stocks and others doing good in the world. Or both.
Some people argue that investing ethically does not achieve much and you are better off doing something else to help the world, like volunteering and while this may be true, I think it misses the point.
You will hear this argument from financial planners when talking to clients when their company or preferred managed account does not have the ethical options available that the client is requesting.
If you are investing anyway-why not invest ethically. Of course, you can still do charity or volunteer outside of investing-it’s not really one or the other.
You not buying a tobacco stock or buying a clean energy stock may not do a lot, but it’s the collective attitude and way of thinking-supporting companies that are doing something positive and avoiding companies that do not, that will make a difference.
Ethical investing is not just about the environment, tobacco and coal stocks- it’s also increasingly about governance and how companies treat employees.
A lot of companies like the big banks and insurers will give to charity and have employees do volunteer days, but then rip people off Monday to Friday, so are they ethical? Does it cancel out? In my opinion-no.
How do you know if the company you invested in is acting ethically every day?
You don’t, you don’t work there and you are not on the board of directors. It is the same with the ethical funds because even though they have more to do with the company they have invested in it is impossible to know everything, but often these funds will do more than just invest in ethical companies, like put pressure on management by buying stocks and then voting to effect positive change.
I would suggest not to over think it too much because if you make an effort to invest ethically it will be better than not doing it at all and if everyone moves in that direction it will make a difference and put pressure on companies to start thinking and acting ethically.
I would not call myself an ethical investor, but I would not invest in certain stocks such as those that test on animals or infringe on human rights, the big banks and payday lenders among others.
There is no right or wrong way to invest ethically-it is up to the individual’s preference, whether it’s positive or negative screening or something more specific like buying clean energy stocks
You investing or not investing in a company may not do a lot, but the collective movement is positive.
It is not a substitute for doing something positive, but rather something you are doing anyway, so you can do it in an ethical way.