What is Ethical Investing? - Parthian Securities - Your Smart Brokerage Firm

If you’ve never heard the phrase “investing ethically” fret not, you are not alone but today will be the end of all of that. In this article, we’ll be discussing what ethical investing is, the types of ethical investments and how you can access them.

Ethical investing involves choosing companies or funds to invest in based on your values. These values could be moral, social, political, environmental, religious or any ideology that you care about. These values, whatever they may be, make up the main filter for the selection of investment options in ethical investing.

Why Ethical Investing?

Although ethical investing depends on the investor’s views, ethical investors generally choose investments that have a positive impact on the world while also aiming to make a profit. For example, the earliest recorded instance of ethical investing was by the 18th-century Quakers, who restricted members from spending their time or money in the slave trade.

These days, ethical investing primarily centers on impacts on the environment and society such as climate change, renewable energy, and animal testing. As more and more people are increasingly conscious of the fact that the fate of our planet rests in our decisions, investments in businesses are increasingly ethically conscious. This is to contribute, in every possible measure, to fostering environmentally and socially conscious companies to ensure we build sustainable systems of living.

Companies involved with stigmatized activities, such as gambling, alcohol, smoking, pollution or firearms are in turn avoided in this context of ethical investments. Certain companies may not market products that are stigmatised but they engage in unethical business practices such as; poor working conditions, sexual harassment, discrimination, false product claims, bribery and selling customer data. These companies can be seen to carry social stigmas, rightfully so, and therefore do not enjoy the patronage of ethical investors. That should show ‘em.

Types of Ethical Investments

Selecting investments based on ethics, however, offers no guarantee of performance. The following investments, whose terms have been used interchangeably in the investment sector, fall under the umbrella of ethical investing:

1. Impact investing: is an investment strategy that aims to generate specific beneficial social or environmental effects in addition to financial gains. The point of impact investing is to use money and investment capital for positive social results. Investors who follow impact investing consider a company’s commitment to corporate social responsibility or the duty to serve society positively. Socially responsible investing (SRI) and environmental, social, and governance (ESG) investing are two approaches to impact investing. According to the Global Impact Investing Network, more than 88% of impact investors reported that their investments met or exceeded their expectations.
2. Socially responsible investing (SRI): this is any investment strategy which seeks to consider both financial return and social or environmental good to create social change regarded as positive by proponents.
3. Environmental, social, and governance factors (ESG): this is a set of standards used by socially conscious potential investors to screen a company’s behaviors.

1. Environmental criteria screen how a company performs as a custodian of nature, in matters such as climate change, energy emissions, carbon footprint, water use and conservation, waste management and resource depletion.
2. Social criteria examine how a company manages its relationships with employees, suppliers, clients, and its immediate community in areas such as employee relations, human rights, diversity within hiring, inclusion programs and impact on communities.
3. Governance criteria deal with how a company is managed or “governed” for driving positive change. It covers assessing the quality of its management and board, shareholder rights, executive pay and diversity, and overall transparency and disclosure.

1. Sustainable investing: This ensures that businesses aren’t judged solely on short-term financial gains but on a bigger picture of what and how they contribute to society, this in turn encourages companies to embrace sustainable principles, which can provide long-term social and financial gains. This concept is embodied in the idea that, in addition to focusing on financial performance and generating profit, organizations should measure their social and environmental impacts.
2. Halal investing: This refers to the investment of money in accordance with Islamic finance principles which is centered on the concepts of social justice, ethics, and using finances to help build communities. An example of halal investing is Mudarabah, an Islamic finance technique in which a lender or investor and a borrower or investment manager establish a profit-sharing partnership to undertake a business or investment activity. Under this structure, the investor provides the financing or funds, and the investment manager provides the professional, managerial, and technical know-how to carry out the business or manage the investment. The investment manager must invest the funds on a Sharia-compliant basis (for example, the funds cannot be invested in prohibited (haram) products or activities such as tobacco, alcohol, or gambling).

How to Start an Ethical Investment in Nigeria

Using an investment platform like i-Invest makes it easy to buy shares or funds. On this platform, there are a few different ways to invest ethically. You could pick your own stocks under ‘Equities’ and create your own ethical portfolio by buying shares or bonds yourself that you believe fit your own beliefs and values, or you can invest directly in the Modarabah fund.

Click here to get started with ethical investing.