Ethical Investing – Five Great Reasons to Build Sustainable Wealth
One of the most consistent routes to success in personal investing is to spot opportunities before they go mainstream. Sure, you need the mainstream to head in the same direction to drive the price up, but the earlier and more cheaply you buy in, the bigger those returns will be.
Ethical investing is not new as a concept. Indeed, the idea dates back to the early 1900s when the Methodist Church of North America decided to get into the world of stocks and shares. Having previously rejected the stock market as a form of gambling, they agreed that it represented an opportunity to build wealth. However, their ethics drove their investment decisions, and companies involved with alcohol or gambling in the traditional sense were never considered.
The Quakers soon followed, with their ethics forbidding their involvement with anything related to weapons manufacture.
What is Ethical Investing?
Consider a typical investment strategy. From retail to international institutions, most decisions rely on financial figures. While the concept could be broken down into numerous contributing factors, they can be broadly defined as the potential rewards, any risks, and time.
Ethical investment adds another critical factor based on the views and opinions of the investor. Some investors may be against the legalization of cannabis, for example. As a result, their ethics preclude them from investing in companies involved with producing and selling related goods.
You may be particularly concerned about climate change. Companies that work to reduce emissions and cut their carbon footprint may become more appealing beyond their financial performance.
Why You Should Consider Ethical Investing for Your Portfolio
No matter your investment goals, ethical investment warrants further consideration. Global warming, deforestation, and renewable energy solutions are just some mainstream topics at the forefront of public attention. More and more companies will seek to meet those goals. People will want to use those companies for ethical reasons, investments aside, and that means a rising share price in the long term.
An Opportunity to Invest in Change
Modern ethical investment opportunities tackle issues that haven't necessarily been around for all that long. For example, global warming first made front-page news in 1988. The first photovoltaic power station – or solar farm – opened in 1982.
Essentially, significant developments in current global ethics took place in most investors' lifetimes.
Think of the world around you. Renewable energy is not yet the standard. The Amazon Rainforest lost an estimated 5 million acres in 2020.
Let's just say that there is room for improvement, and investing in companies that can make a genuine change not only sets up incredible returns but aids them in their goals to make the world a better place.
Sustainability of Both Companies and Profits
Renewable energy is popular among businesses and individuals alike, in part, because it is sustainable. It has been estimated that Earth's supply of fossil fuels will expire by 2060 if consumption continues at current rates.
Conversely, solar energy will only run out when the sun no longer shines. At that point, we probably have more significant problems than power supplies!
The same kinds of ideologies apply to all forms of renewable energy. Not only are they better for the planet and aligned with the ethics of most people, but there are no limits on how long companies and investments can continue to grow.
Broad Support for Your Investment Goals
From beginners to veterans, virtually every investor has a strategy or personal quirks that guide their decisions. While there remain opportunities for those that make their moves early, there are more than enough opportunities out there to meet even the most specific requirements.
For those that prefer to invest in indices but wish to add an ethical twist, the FTSE4Good Index and Dow Jones Sustainability Indices represent fantastic options.
Investors seeking an ethical ETF may have an interest in the Vanguard US ESG Stock ETF.
If you prefer cryptocurrency, there may be room for a small position in SolarCoin, which generates one coin for every Megawatt hour generated from solar technology. Of course, cryptocurrencies and ethical investing don't necessarily go hand in hand. Still, with Bitcoin regularly in the news for being bad for the environment – even leading to Tesla dropping their interest for the time being – alternatives are a worthy option.
Finally, you could invest the old-fashioned way. Research companies, get an idea of their goals and any unique approaches, and check out the financial information. Then, if they're making the changes you'd like to see in the world, you can invest in their success and reap the rewards if that success comes off.
Position Your Portfolio Ahead of the Mainstream
It's widely accepted that climate change is real, fossil fuels are bad for the environment, and deforestation causes more problems than it solves. However, the number of people that accept these statements as fact vastly outweigh those that use the information to drive their investment decisions.
Ethical investing could be the ever-important edge to get ahead of the market. There are plenty of ethical investments out there that are not yet mainstream but probably will be in the coming years.
Many countries have already legislated for the adoption of electric vehicles, while plenty of companies have committed to cutting their carbon emissions. However, it's a work in progress, and there are still opportunities out there for investors to get in on the ground floor.
No Need to Compromise on Returns
One of the biggest myths surrounding ethical investment is that anyone who allows their morals to drive their decisions must sacrifice potential returns to do so.
Even in the last decade, experts have considered ethical investments as poor performers compared to their conventional counterparts. However, this has been debunked on numerous occasions. Indeed, sustainable investment indices boast comparable performance to their mainstream counterparts, occasionally even outperforming them.
It is impossible to predict how different stocks and funds will perform, but any disadvantages associated with ethical investments are typically negligible.
While this feature does not represent financial advice of any kind, it is important for investors and those guided by their moral compass to appreciate the potential of ethical investing. Positioning your funds in a way that may lead to real global change without sacrificing potential returns is an opportunity not to be dismissed.