How to master the 5 principles of ethical investing

NNatalie January 3, 2024 7:04 AM

Ethical investing is a strategy where you align your investment decisions with your moral, social, and environmental values. In recent years, this form of investment has gained popularity as more individuals are becoming conscious about the impact of their money. In this guide, we'll delve into the five key principles of ethical investing and how you can master them.

Understanding ethical investing

Before we dive into the principles, it's essential to clear up what ethical investing means. Also known as sustainable or socially responsible investing (SRI), ethical investing involves putting your money into companies or funds that align with your personal values. This could be anything from environmental sustainability to social justice.

The three main types of ethical investing are:

  1. Socially responsible investing (SRI): Avoids or excludes investments in companies involved in practices considered harmful to society such as tobacco and firearms.
  2. Environmental, social, and governance (ESG): Considers companies that demonstrate strong practices in these three areas.
  3. Impact investing: Focuses on companies that aim to generate a positive, measurable social and environmental impact alongside a financial return.

The 5 principles of ethical investing

Principle 1: Understanding your values

The first step in ethical investing is understanding your values. What causes are you passionate about? What kind of impact do you want your investments to have? Some people might care about climate change, while others could be passionate about gender equality or animal rights. Once you've identified these values, you can choose investments that align with them.

Principle 2: Researching potential investments

Once you've identified your values, the next step is to research potential investments. Look at the company's ESG ratings, their corporate social responsibility reports, and news articles about them. This will give you a better understanding of whether they align with your values.

Principle 3: Diversification

Even with ethical investing, it's still important to diversify your portfolio. This means spreading your investments across different asset classes to minimize risk. There are a plethora of ethical ETFs and mutual funds available today that can help you achieve this.

Principle 4: Regular review and realignment

Ethical investing is not a 'set and forget' kind of investment. Companies can change their practices, and new information can come to light. Regularly review your investments and realign them with your values when necessary.

Principle 5: Patience and long-term commitment

Finally, remember that investing is a long-term commitment. Ethical investments can offer competitive returns, but like any investment, they require patience. It's not about making a quick buck, but about supporting companies that are making a positive impact.

Getting started with ethical investing

If you're new to investing, starting with ethical investing might seem daunting. But it doesn't have to be. Here are some tips to get you started:

  • Start small: You don't need a huge amount of money to start investing. You can start with as little as $50 or $100.
  • Use robo-advisors: There are many robo-advisors today that offer ethical investing options.
  • Don't forget about diversification: As mentioned earlier, diversification is key. Don't put all your eggs in one basket.
  • Stay informed: Keep up-to-date with news about your investments and the wider ethical investing landscape.

By mastering these principles, you can make your money work for you while also making a positive impact in the world. Ethical investing is not just about the returns, it's about creating a better future.

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