To clarify what ethical investing is, we’ll start by establishing what it isn’t. In this article, we’ll be addressing the ten most common myths of ethical investing.
There has been a sea of definitions and ideas thrown in the arena of ethical investing, but the motivation remains the same; ethical investing is for people wanting to make a difference with their money, whilst simultaneously, making money.
With an overabundance of information creating green confusion, we want to help set you on the right path.
Busting the myths
MYTH #1 You need to sacrifice financial gain for ethical value
Possibly the biggest myth of all is that ethical investing delivers low returns. Sustainable growth is a necessary ingredient to ensure the long-term growth of a company. A business that has strong environmental, social and governance (ESG) practices will avoid unexpected charges or obstacles further down the line.
MYTH #2 Sustainable and ethical investing means choosing specific accounts and funds that screen out unethical choices
Ethical investing is an investment philosophy, not a specific technique. It integrates conventional investment criteria with ESG criteria, aligning an investor’s financial goals with their social and environmental goals.
MYTH #3 Those seeking to use their money for good are either millennials, gen z or teachers and social workers!
There is now a wide variety of ‘non-traditional’ clients showing interest in ethical investing. In the UK, over 70% of people claim they want their investments to do good for people and the planet.
MYTH #4 It’s only for people with lots of money to invest
There is an increasing number of investment options that only require a small amount. Some crowd-funding projects accept as little £5.
MYTH #5 It’s too expensive
There is only a slight premium on ethical investments because of the extra due diligence required. However, the higher returns should make up for this. Also, the rise in passive ethical funds and ETFs has increased competition, helping to keep costs low.
MYTH #6 It’s too complicated
There’s no time like the present. With ethical investing entering the mainstream, it has never been easier to find resources offering advice on how to make better financial decisions. We would always recommend you seek professional advice before investing, so please speak to a financial adviser first.
MYTH #7 It’s niche
To maintain a competitive advantage, managers are responding to the growing demands of clients seeking ethical investment solutions. The Governance and Accountability Institute found that, in 2018, 86% of companies in the S&P 500 actively reported on ESG risk factors voluntarily.
MYTH #8 It must be all or nothing
If you’re still unsure, why not just dip your toes in the water? You can have a blended portfolio of conventional and ethical investments.
MYTH #9 It involves higher risks
The nature of ethical investing can result in a smaller investment pool to choose from which increases the risk of an investment portfolio. However, there are risks for firms with poor environmental practices too; from reputational risks to costs incurred through fines.
MYTH #10 It’s impossible to have a meaningful impact and influence large businesses
Large businesses react to consumer trends. To maintain their position of power, they must adapt to the changing consumer attitudes and behaviours.
Making money, and making a difference
Your money really can make a positive impact. The challenges outlined in the UN’s Sustainable Development Goals are pertinent to us all. And if we’re going to tackle them, ethical investments are one small act that can generate a positive, long-term impact on society and the environment.