Also published on https://openmarkets.group/2020/09/ethical-investing/
Once pigeonholed by traditional investors as only for a typically bohemian minority, ethical investing is quickly moving into the mainstream.
When 2020 began with Australia on fire, it brought global warming to the forefront of many of our minds; and when a global pandemic and its aftershocks followed, the dialogue surrounding our society’s ethical norms began to change.
The practice of ethical investing involves long-term wealth creation by both investing in companies demonstrating positive environmental or social impact, and excluding those who contribute to unsustainable or irresponsible practices – practices like tobacco production, non-renewable energy and weaponry.
Ethically responsible investing as a notion works, because it gives those
who practice it a chance to make a positive impact on the world, without relying on political leaders to take action for them.
This responsibility extends from the environmental to the social, with an emphasis on investing in companies that create a positive impact towards employee wellbeing, data privacy, product safety and gender diversity.
A number of sustainable funds refer to the environmental, social and corporate governance (ESG) of their ethical framework. ESG criteria cover a wider spectrum of issues not typically considered in financial analysis, understood as a proxy for how markets and societies are changing in tandem.
According to a report by global research agency Morningstar, many sustainable funds emphasise the identification of stocks that present the “best in-class practices” addressing relevant ESG issues, shifting the portfolio toward companies that are better equipped to manage them.
Morningstar also identifies the importance of personal research in avoiding common traps like inconsistent naming conventions among sustainable funds.
“Most funds that emphasise the consideration of ESG factors into their process are marketed as sustainable offerings and include key terms like ESG or sustainable in their names,” it says.
“The next step in your consideration process should be to analyse how well the fund is actually delivering on [their] promises.”
What remains important, according to Morningstar, is to classify sustainable funds correctly among its various interchangeable terms; sustainability, ESG, impact investing and responsible investing.
However it’s framed, it seems ethical investing will continue to rise in popularity in 2020, as we strengthen the ties between ethical investing and financial gain.
If ethical investing has sparked your interest, be sure to watch this space for an upcoming crash-course on all things ESG and ETFs: the investors acronym that’s set to make strides in sustainable finance.
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