In short, ethical investing involves aligning your investments with your moral values. It’s about having a positive impact and investing in social change, not just for returns. To help decide which investment approach is best for you, you first need to think about what matters to you the most.
Whether you’re passionate about animal welfare, workers’ rights, climate change, or any other issues, these values fall into the three broad areas (environment, social and governance), also known as ‘ESG’.
What ‘ethical’ means to one person means something completely different to another, so first, you need to decide where you stand with ethical investing. At Balance: Wealth Planning, we factor in your ethical preferences from the outset. We delve into what matters to you and get to the bottom of why it does too.
The history and rise of ethical investing
Ethical investing, although more popular than ever at the moment, isn’t a new concept.
The earliest references to socially responsible investments date back to the 18th century. The religious group from the US known as the Quakers prohibited their members from associating with the slave trade on ethical grounds. Around the same time, the founder of Methodism, John Wesley, held a sermon called “The use of money”. He preached about business ethics and encouraged his followers to avoid putting money into businesses that treated their workers poorly.
In the 20th century, the Methodist Church made the first ethical investment on record. The church decided to invest in the stock market because they would avoid any ‘sinful’ companies such as alcohol, tobacco and the arms industry.
Then, in 1971, the Pax World Fund was set up in the US to stand against the Vietnam War. The Pax fund was the first socially responsible fund to become available to the public, aiming to allow investors to align their investments with their values.
In the 1980s and ‘90s, environmental disasters like Chernobyl and the Exxon Valdez oil spillage resulted in questions over safety, and investment into coal and other fossil fuels reduced.
In the 2000s, the financial crisis uncovered questionable corporate governance, and climate change and sustainability have come to the forefront most recently.
There are now over 2500 ethical funds, with 70 new ESG funds launched in the first three months of 2020 alone. Assets held in ethical funds have more than trebled over the past decade in the UK, as the appetite for ethical investing continues to rise.
The good news is that things are changing, albeit a lot slower than needed. Grassroots projects have encouraged ethical consumerism, and now it’s over to larger companies and governments to simplify ethical investing and make it accessible to more people.
Here’s some recent sustainability news that shows putting pressure on governments and large corporations can help inspire real positive change in the world:
- The 10-point plan for a ‘green industrial revolution’ marking out the path for the UK to reach net-zero carbon emissions by 2050
- The governments green bond making it easier for savers to invest in green finance
- The UK Stewardship Code holding fund managers accountable for ensuring they’re supporting positive change that benefits their clients, as well as the economy, environment and society at large
- With the EU’s Sustainable Finance Disclosure Regulation coming into force in March 2021, it’s fair to assume the investment industry in the UK will follow suit shortly.
The future of ethical investing
Recent research from Triodos Bank found that most adults believe 2021 will be a pivotal year for building a greener future, with nearly 20 million Britons having a renewed sense of focus on living a greener lifestyle. However, the research also highlighted most people don’t realise the impact of using their finances for good.
In an article written for Money Marketing, our MD, Rebecca Aldridge, speaks of the growing demand for ethical investing but raises concerns around the gap between beliefs and actions and the ability of fund managers to provide the solutions ethically driven individuals are seeking.
If faced with the question of whether you care for the various environmental, social and governance factors, the answer will likely be yes. But what it all comes down to is intentions. You may hold certain beliefs, but do your actions accurately reflect this?
Where do you stand?
Before using your money for good, you should first consider what causes are most important to you. Is it climate change, workers’ rights, conservation? What companies would you like to invest in, and what companies would you like to avoid?
Follow our flowchart to help you understand what investment approach might be best for you, and, of course, we also recommend you speak to your financial planner or a professional to ensure your investments align with your values.
If you have any questions about ethical investing or want to discuss your investment approach, don’t hesitate to get in touch and speak to one of our financial planners.