What is ethical investing?

Ethical investing, which is also referred to as socially responsible investing (SRI), involves investing in companies or funds that are in line with an individual’s ethical principles or values. This approach entails being mindful of the impact your investments have on the world and how your money is being invested.

There are several types of ethical investing that Wealth Architects can assist clients with, depending on their values and preferences.

Negative screening

Negative screening involves excluding companies or sectors that do not align with a client’s values. For example, a client may choose to exclude companies involved in gambling or weapons manufacturing.

Positive screening

Positive screening involves investing in companies or funds that have a positive impact on the environment or society. For example, a client may choose to invest in companies that are actively working towards reducing their carbon footprint.

Best-in-class

Best-in-class screening involves investing in companies that are considered the best in their industry in terms of environmental, social, and governance (ESG) practices. This type of screening considers companies that may not be perfect in terms of ESG practices, but are still leading the way in their industry.

Ethical investing has several benefits, including:

• Aligning your investments with your personal values
• Encouraging companies to improve their ESG practices
• Potentially producing similar or better returns compared to traditional investing in the long-term

At Wealth Architects, ethical investing is not just about doing the right thing, but it is also about making sound financial decisions that align with your values. Our goal is to help clients achieve their financial goals while also making a positive impact on the world.

How do I ethically invest?

Investing in alignment with your values and principles is an important decision that requires careful consideration. Here are some steps to help you ethically invest:

The first step in ethical investing is to identify your values and principles. What issues are important to you? Do you have any areas that you would like to avoid investing in? This will help you determine the type of ethical investment approach that you would like to take.

Once you have identified your values and principles, it’s time to research ethical investment options. There are many different types of ethical investment approaches, as outlined in the previous section, and it’s important to find the approach that best aligns with your values.

Working with a financial planner can be extremely helpful in navigating the world of ethical investing. They can help you understand the different investment options available and how they align with your values. Additionally, a financial planner can provide guidance on how to build a diversified portfolio while still adhering to your ethical principles.

The role of a financial planner in ethical investing is to help you make informed investment decisions based on your values and principles. They can provide you with information on ethical investment options and help you determine which options align best with your values.

Effective communication and alignment between client and planner is essential in ethical investing. It’s important for the planner to understand the client’s values and principles so that they can make recommendations that align with those values. Additionally, the planner should communicate any potential risks or drawbacks associated with an investment option so that the client can make an informed decision.

Is ethical investing better for my returns?

When considering ethical investing, one of the most common questions investors ask is whether it will provide the same returns as traditional investing. While ethical investing may prioritize principles and values over profits, it is still a legitimate form of investing and can generate competitive returns.

In fact, many ethical investment options have been known to perform just as well, if not better, than their non-ethical counterparts. A study conducted by the Morgan Stanley Institute for Sustainable Investing showed that sustainable equity funds had similar returns to traditional funds between 2004 and 2018. 

Returns in ethical investing can be affected by a range of factors, including the specific ethical investment approach taken, the sector in which the investment is made, and the overall economic and market conditions at the time of investment.

However, as with any form of investing, ethical or otherwise, it is important to take a long-term investment horizon. In the short term, returns may fluctuate due to a range of factors, but in the long-term, well-governed and ethical companies have historically produced greater outcomes.

Ultimately, the decision to invest ethically should be based on an investor’s personal principles and values, and the potential returns should be considered alongside these principles rather than as the sole determining factor.

In the next section, we will discuss how ethical investments are screened to ensure they meet specific ethical standards.

Examples of ethical investing options

There are various ethical investing options available, each with its own unique approach. Here are some examples: