Ethical investment is gaining momentum as more investors are considering investing ethically.
Ethical investment involves aligning your investment portfolio with your moral compass. It allows investors to allocate capital to businesses that align with their beliefs.
However, many areas around ethical investing remain scanty despite the investment becoming a mainstream issue. Luckily, these 5 questions shed light on how the investment works and how to choose an ethical fund.
1.What Issues are Important to Me?
Before choosing an ethical fund, ask yourself what activities matter most. For instance, do family values, religion, or animal safety matter the most to you? Do the companies in the portfolio prioritize these practices? Identifying what matters most to you will help in the screening process and guide you into choosing investments that will give you peace of mind.
2.Which Companies Are the Funds Invested In?
If your ethical codes require you to invest in sustainable energy, directing your funds toward coal mining or nuclear energy companies goes against your wishes, as these companies have little regard for the environment.
So before investing, you must enquire about the companies within the portfolio. The fund manager should provide a complete list of companies in the portfolio without omitting even one. If they hesitate to provide, it shows they have something to hide.
If the complete list is provided, ensure the ethical fund manager has undertaken a comprehensive screening. Do the companies operate responsibly and set an example for others to follow? For instance, the company might use environmentally friendly technologies, but do their employees work under a healthy and safe standard?
3.Does the Fund Offer an Ethical or RI Investment Option?
Some funds offer sustainable, socially responsible, ethical investment options. However, some take a different path and invest using an RI approach. Although the investment is responsible, it does not indicate how sustainable it is.
In such a case, you must do some homework and gather all the information you can get regarding that particular company. Check the fund manager’s screening process before selecting it for the investment option.
4.Does the Investment Policy Reflect Your Ethos and Culture?
An updated investment policy ensures the fund manager invests consistently based on ethical values. However, things change over time, but every detail of the change should reflect in the portfolio.
For instance, a company may let its guard down and become less ethical. In such a case, what does the fund manager do to ensure your objectives as an ethical investor are met?
A good fund manager should conduct regular reviews and keep an eye on the activities of the companies in the portfolio to ensure standards stay within expectations. If a company lets its ethical rating slip, the fund manager should remove it from the pool to ensure the sustainability of your plans.
5.Is There an Independent Body to Decide on Certain Contentious Investment Matters?
Some investments will bring uncertainty, and an independent committee should offer a way forward. For instance, is an oil company considered ethical if it has excellent environmental initiatives, or is it thrown out of the window?
What if a retail company recently introduced alcohol distribution that takes up less than 10% of its investment? Is it considered unethical? An independent committee should step in during such cases.
Understanding Ethical Funds and Making the Right Decision
Ethical investment is taking a portion of the global investment pie. Therefore, thinking carefully about the investment details will protect you from the risks of going against your ethos and morals. Asking relevant questions is a perfect way to ensure your chosen ethical fund stays true to its ethical mission.