The world is a scary place right now. From the threat of nuclear war, to climate change and pandemic disease, it seems very few industries are free from scandal or morally ambiguous practices.
But this isn’t an excuse not to invest; on the contrary, your investment portfolio is one of the most powerful tools you have for influencing corporate behavior and positively impacting the world. Even if you’re not a super-rich hedge fund manager with the power to influence company stock prices, there are plenty of ways you can invest ethically and responsibly.
In this article, we outline everything you need to know about investing in ethical funds.
What Is An Ethical Fund?
An ethical fund is a type of fund that pursues a specific social or environmental mission. Ethical fund managers specialize in finding companies that align with their environmental, social, or governance (ESG) values.
There are a number of different types of ethical funds, each with its own ESG priorities. Some of the more common types of ethical funds include:
- Impact funds invest in companies that directly tackle issues such as climate change and inequality.
- Eco funds invest in companies working to protect the environment and habitat.
- Sustainability funds that invest in companies with strong sustainability policies.
- Socially responsible funds that invest in companies pursuing a mission that benefits society.
The Importance of Investing Ethically
One core reason for investing in ethical funds is the potential for greater financial returns.
Ethical funds often invest in smaller, niche companies with positive missions but limited reach. These smaller funds, therefore, have a higher risk profile and are likely to offer a higher return. This can be an attractive proposition for investors who want to make a difference with their funds but also expect they will be rewarded for their work.
Ethical investments are also important to bring about positive change in the world. As the world becomes ever more interconnected, it’s impossible to ignore financial markets’ impact on society.
When people buy and sell stocks, they help determine which companies succeed and which fail. This means that regardless of how rich or poor you are, your investments have the power to help create positive social and environmental change.
When you invest ethically, you are voting with your money. You are telling companies that you don’t want to support practices such as deforestation or polluting rivers. You are telling them you want to see an increase in renewable energy and an end to animal testing.
In turn, these companies will make changes in the way they operate in order to earn your business and the money invested by others like you. The more people who invest ethically, the more change we can create.
How To Invest in Ethical Funds
Research Is Key
Start your hunt for ethical funds by researching providers that offer the types of funds you want to invest in. Ethical Investment Research (EIR) is a good place to start. It offers an ethical fund finder to help you navigate the market and find funds that are a good fit for you.
Consider Fund Size
Once you have found some potential funds, you will need to decide which size of the fund is right for you. It is important to consider the fund size when choosing an ethical fund. Smaller funds are often more volatile and riskier but can offer much greater rewards.
Know Your Risk Profile
Once you have decided on fund size, you must consider your risk profile. The risk associated with ethical funds varies greatly. Risk is inherent in any type of investment, but when investing ethically, you also have the added risk of making a social or environmental impact.
The Bottom Line
Ethical funds are a great way to invest money and positively impact the world. Before diving in, make sure you understand the different types of ethical funds and what each entails. Once you do that, you can search for ethical funds that best fit your needs and goals.