Ethical Investing

In this overview, we will be looking at ethical investing. This type of investing has been slowly gaining more and more interest because of current world issues such as global warming, poverty and child labour. Ethical Investing is basically investing in companies for more than the profit forecasts. Ethical investing takes into consideration environmental, social and economic consequences of investing in a particular company, this is sometimes referred to as 'triple bottom investing'.

Ethical considerations

Everyone has a different idea as to the meaning of ethical investing. What is OK for some is wrong for others. For instance, some people will refuse to invest in companies that produce condoms while others will. The former might have conflicting religious beliefs as to the use of condoms, while the latter would believe that condoms are necessary to control world population growth and the spread of sexually transmitted diseases.

As a base, most ethical investment funds and people would have a policy that investing in companies associated with uranium, tobacco and gambling are considered highly unethical. Some people would be happy with this particular policy while others would create a much more complex screening process. Many ethical investment fund managers agree that if you would like to invest ethically that it's important to first outline your policies and screening processes first before you decide where to invest your money.

Some people will only invest in companies that create only environmentally friendly products while others want to know that no one is being exploited in the production of a product. Furthermore, there are ethical investors that will not invest in the pharmaceutical industry because they disagree with the extensive use of prescription drugs while others will consider how much money is given to charities each year. Everyone has different opinions as to what is ethical and unethical.

As an investor, you decide to only invest in companies that adhere to your own particular ethical standards. This type of philosophy requires quite a lot of research because you will need to understand the business thoroughly. There are many people who don't have the time for this amount of research but agree with the philosophies of ethical investing. This is not a problem because there are many investment funds both in Australia and overseas who specialise in this field. The only amount of research required by investors before they put some money into an ethical investment fund is a read of each funds particular ethical standards.

Performance

Initially ethical funds found it difficult to perform as well as other funds due to the limitations imposed on themselves as to what type of industries and companies they considered investing in. Recently, investing in ethical investment funds have performed relatively well compared to non-ethical investment funds. However, due to things like the Kyoto and Montreal protocols, more and more businesses will in the future need to find business activities that are either good for the environment or recycle current waste thereby increasing the amount of different companies to invest in.