Our world these days is filled with so many choices and so much information that we can forget how much control we have over our finances. When you start to dive into the world of finance you’ll start to realise that you have a lot more autonomy over your finances than you may have realised.

Not only can you pick the company you bank with, the insurances you take out or who you invest your super with, but you can actually choose which companies you invest your hard-earned dollars in.

Although it’s just started to gain more media traction in recent years, ethical investing is a concept that’s been practised by investors for years, by considering factors alongside financial return when they choose where to invest their money.

This might simply be having a look at companies and whether they align with your values, or breaking down the environmental, social and governance (ESG) factors of the company.

Ethical Investing Strategies

Here are some examples of ethical investing strategies provided by the Harvard Business Review:

  • Negative/exclusionary screening (eliminating companies in industries or countries deemed objectionable )
  • Norms-based screening (eliminating companies that violate some set of norms, such as the Ten Principles of the UN Global Compact)
  • Positive/best-in-class screening (selecting companies with especially strong ESG performance)
  • Sustainability-themed investing (such as in a fund focused on access to clean water or renewable energy)
  • ESG integration (including ESG factors in fundamental analysis)
  • Active ownership (engaging deeply with portfolio companies)
  • Impact investing (looking for companies that make a positive impact on an ESG issue while still earning a market return)

Doing this doesn’t eliminate the risks involved in investing, but it does give you a better idea about where you’re putting your money and what the companies intend to do in the future.

There will always be unforeseen circumstances that will make you wonder why you ever considered investing in that company was a good idea in the first place, but putting a framework around your investment decisions will make it easier to sleep at night.

Having your own guidelines about what you invest in will help stop you from going off and buying that stock tip your friend mentioned over coffee last week or the latest IPO that your broker is promoting, without doing your own research first.

What Impact Does The Company Have On The World?

Many companies will tell you that the product or service they’re offering is doing wonderful things, but Australian investment manager, Australian Ethical, poses four key questions when they’re trying to determine the positive or negative impact a company has on the world.

  1. What are all the impacts of the companies’ products/services?
  2. How do people use the company’s products/services?
  3. How are the products produced/services provided?
  4. How does the company market and sell its products/services?

It certainly takes more time to make investment decisions with a values-based overlay, which is why ethical fund managers, superannuation companies and investment products have become increasingly popular over the last decade.

It’s another way to have more control over where your money is being invested without having to make each individual decision. When you look for an ethical investment product, make sure to review what the company deems ethical/unethical and their own investment guidelines.

Many potential investments will have both positive and negative impacts, so it’s up to you to decide what falls within your own personal values, and whether the investment manager aligns closely enough to your values.

Kate — HTM Editor & Host


kate-campbell-how-to-money

Kate Campbell is the founder of How To Money. Kate created HTM from a passion to help young Australians start talking about money, and share the resources she finds along her financial education journey. This led Kate to start her own journey to financial independence a few years back and she now works in the Australian financial services industry.


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