Ethical consumerism has risen tenfold in the last 10 years and it is increasingly having an effect on all industries, rapidly changing the way we do business and make investments. What we spend our money on gives us a sense of how we want our future world to look like, and consumers are now considering how they can apply ethics in every area of their lives.
Financial institutions are one of the latest to be affected, and the way we spend and manage our money is increasingly changing, from switching to more responsible banks, to choosing our pension providers based on the ethical background of the company, as well as the companies we are investing in.
Traditionally, investing has been seen as an exclusive club for the rich and wealthy, with the sole aim to making money by investing in the large corporations. But the scope of the investment world is now changing as a result of more inclusivity and the ability to learn anything online, resulting in different areas of the population becoming more interested in investing. People are now looking at alternative options to generating income, making investing an interesting and smart route.
Research has found that assets held in ethical funds have more than trebled over the past decade, as UK investors pour money into green and socially responsible businesses. Reports by Hargreaves Lansdown have stated that money held in ethical funds has gone from £4.5 billion in 2008 to £16.7 billion in 2018. This clearly shows that ethical investment choices are dramatically increasing and is likely to develop even further as more importance is placed on social, environmental and sustainable-based decisions to shape the future of the world and change how we do business.
Ethical investments can be categorised into three main strategies when it comes to the ethics of choosing potential investment opportunities:
- Ethical Investing
At its most basic level, Ethical Investing refers to the exclusion of certain sectors that are controversial in today’s society. This can range from companies who test on animals to those benefitting from sales of tobacco or firearms.
- Sustainable Investing
Sustainable Investing involves selecting companies who have good social and/or environmental initiatives, and are taking the first step to make changes throughout their business, such as reducing carbon footprint.
- Impact Investing
Impact Investing takes it to a further step and seeks out companies with the intention to generate social and environmental impact through the way they do business, and the products or services they have on offer.
With the increase in knowledge of what happens around the world, and with more people supporting sustainable practices, investors can use ethical investments to their advantage. Companies who have a poor record on environmental and social issues can be seen as a red flag by investors, from a risk perspective, as well as an ethical one.
Impact investing can have an extra added benefit by using the individuals power as a shareholder to influence the way companies are conducting themselves, allowing people to have an opinion on the key decisions and help influence positive change. An example of the big impact that shareholder power can have on a company is in the case of Friends Of The Earth v Balfour Beatty.
Balfour Beatty planned to build a dam in Turkey, which would result in 78,000 local people being left homeless and drown many towns and villages out nearby. Friends Of The Earth bought £30,000 worth of shares in order to submit a shareholder resolution on the project. A few months later, Balfour Beatty pulled out of the project, announcing it was not in the best interests of the stakeholders to pursue the project further, stopping any future damage to the environment and the people living nearby.
While as individuals we may not be in a position to make that big of an impact, the smaller actions we choose on a daily basis can add up to create big changes overall.
If you are interested in ethical investing, the first step is to begin identifying what ethical issues matter most to you. From there, Ethical Consumer has a great guide to help you get started with investing in the right places with their Ethical Investment Funds Guide.
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