Why & How to Invest Ethically

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you´ll do things differently. (Warren Buffet). 

Ethical investing, also known as socially responsible investing (SRI), sustainable, socially conscious, or “green” investing – a dear child has many names according to an old Nordic saying – is a rapidly evolving investment strategy seeking to consider both financial return and social good.

SRI, the origin of which dates back centuries e.g. to Jewish law and Halal or Shariah (religious teachings of Islam), encourages corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity – in short: SOCIAL JUSTICE.

SRI can be characterized as follows:

• Embraces peace and nonviolence
• environmental stewardship
• Protects consumers
• Respects human rights and diversity
• Is socially conscious
• Promotes healthy working conditions!

SRI, including the integration of an evaluation of ESG (environmental, social, and governance) factors in decision-making processes focuses upon improving financial performance without neglecting the well-being of all stakeholders. Furthermore, community investing, a part of SRI, directs capital to people in low-income, at-risk communities through socially conscious investors who seek to support these towards reducing poverty, creating jobs, providing affordable housing, and financing small business development.

Factors influencing growth of Socially Responsible Investing:

• Increased information and knowledge among investors
• Environmental issues and sustainability
• Long-term interest
• Performance
• Availability
• Values and authenticity
• Corporate scandals
• Women and female leadership

The UN Principles for Responsible Investment (PRI), encouraging investors to adopting socially responsible investment strategies, were developed by an international group of institutional investors based upon environmental, social, and corporate governance issues, taking into consideration transparency, corruption, board structure, shareholder rights, business ethics, risk management and executive compensation:

These principles are:

PRI 1: Incorporation of ESG issues into investment analysis and decision-making processes.

PRI 2: Active ownership and incorporation of ESG issues into ownership policies and practices.

PRI 3: Appropriate disclosure on ESG issues by entities invested in.

PRI 4: Promoting acceptance and implementation of the PRI´s within the investment industry.

PRI 5: Co-operation towards effective implementation of the PRI´s.

PRI 6: Active reporting on activities and progress made in implementing the PRI´s. (United Nations. The Six Principles for Responsible Investment. 2015).

WHY invest ethically?

By investing ethically you directly and indirectly contribute to a better and improved world.

Ethical investing is based upon long-term planning and upon creating lasting value rather than merely reaping the benefits of get-rich-quick schemes and other forms of unethical investing.

Through ethical investing you/your business acts morally correct and you can sleep your nights tightly without a burden on your consciousness.

How to invest ethically?

There are countless ways of investing ethically, depending upon your (financial) resources. Investing is a very broad term including investments in your personal development, education, healthcare (perhaps the most important investments you can ever make in your life), but investments other than those in your personal life include real estate and various kinds of securities.

When investing in real estate and securities on your own, make necessary background checks about your investments, such as:

Get to know the facts such as corporation´s annual reports, including CSR activities, employee retention/turnover figures + other details concerning employee benefits (especially when investing directly in stocks).

If you are a direct investor in small cap businesses, an angel investor etc., make sure you know the details/have enough information about the owners credibility, the businesses plan for the upcoming years. As a startup/angel investor especially, make sure you have the possibility and right to participate in planning the future of the company.  

In fund-investing, make sure you know the fund policy and everything you need to know about the companies + other relevant facts about the fund. 

When trusting a service-provider with your capital by letting them invest on your behalf, make sure to:

Know your service-provider well enough. Check their background, regardless of the size of the service-provider. The size is no guarantee for more reliable/better service. 

Make sure your service-provider has the knowledge, skills, and professionalism needed in order to make wise long-term decisions on your behalf. You can do this by choosing a service-provider who/that has the necessary qualifications/ experience in investing, and by making sure that your service provider supports the rules of ethical investing and UN´s PRI´s + follows the rules of sustainable, long-term investing rather than taking unnecessary risks with your hard-earned/saved capital. 

See and read the terms of agreement provided to you by your service provider. Various service-providers charge different kinds of fees, but the fee(s) are no indicator about investment ethics or performance.

Make sure you understand the investment well enough, and refrain from investing in products that you have no comprehension about. Please let your service-provider explain the investment products to you. Any reliable, professional investment-provider is capable of explaining the investment structure/product to you in a comprehensive manner.  

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This blog post has been written only for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed in this post do not constitute investment advice. The information provided herein or in any communication possibly linked to this blog post is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Neither the information, nor any opinion contained in this post constitutes a solicitation or offer by the author to buy or sell any securities, futures, options, shares, funds, or other financial instruments or provide any investment advice or service. 

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Thank you for investing ethically, and for learning more about ethical investing. If you would like a personal consultation with me regarding your investment planning, please contact me directly.