If you are worried about investing your money in areas that do not align with your personal beliefs or moral compass, then an ethical investment is the way to go. Ethical investment has become an easy and lucrative investment strategy with the availability of ethical investment funds such as ESG funds, mutual funds, and ETFs.
Even though what one person may consider ethical may be unethical to others or vice versa, ethical investment funds tend to support industries and companies that positively impact society while creating an investment return.
Examples of companies listed in ethical investment funds include sustainable energy-generating companies and companies manufacturing green products. In contrast, these investment funds discourage companies with negative implications, like alcohol, fossil fuel, weapons, and tobacco manufacturing companies.
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Types of Ethical Investment Funds
Environmental, Social and Governance (ESG) Funds
ESG funds generally include companies with positive environmental, social, and governance concerns. In other words, ESG investment funds tend to filter out companies whose environmental, social, and governance issues result in negative consequences.
Therefore, a company’s suitability to be included in ESG funds is determined by its ESG scores. And these funds try to achieve a similar level or even more returns as they would with the standard approach.
Socially Responsible Investment (SRI) Funds
Unlike ESG funds, which pay attention to environmental, social, and governance factors, SRI funds usually avoid companies in controversial social areas like gambling, alcohol, tobacco, and firearms. Therefore, these ethical investment funds give the investor’s moral values greater attention than the fund’s performance.
Faith-Based Funds
Ethical investment funds also consider the difference in people’s faith and beliefs. Therefore, the funds in this category would only include companies that align with a certain religious group. And would strictly exclude investments that would raise concerns when placed in this category.
Impact Funds
Impact funds consider the fund’s performance in equal measure as its implications on people’s lives. Therefore, investors in this category are concerned about the social responsibility of the fund but, at the same time, are concerned with how the investment can attract profits. Therefore, the companies listed in impact funds deal with specific services or products.
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Benefits of Ethical Investment Funds
Ethical investment funds allow investors to align their investment options with their moral values. As such, they are emotionally happy if such companies perform well. Ethical funds also allow investors to grow their investments substantially in the future, as such investments guarantee sustainability. Also, with the growth of ethical investment, even unethical companies will be encouraged to step up their ethical practices to improve their financial performance.
Summary
Ethical investment funds are centered on being relevant to investors who want to make a difference in society. The various types of ethical investment funds include; ESG funds, SRI funds, faith-based funds, and impact funds.
The benefits of ethical investment funds include allowing the investor to align their investment options with their moral compass and also present an opportunity to grow their investment in the future. The funds also encourage other companies to embrace the ethical investment strategy and improve their ethical practices.