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A guide to researching ethical investment opportunities

January 2022

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Ethical investing has exploded in recent years, as shareholders look to support businesses and industries with a grip on ESG policymaking. But identifying the right opportunities is no easy task, with lots to consider before you part with your cash.

If you want to invest in businesses or organisations that marry with your moral compass, our guide on researching ethical investment opportunities can help. Here, we define what ethical investing involves and how to identify the prospects that are right for you.

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What is ethical investing?

Ethical investing is when you choose investment opportunities based on the ethics of a business or organisation. Typically, investors look for projects with evidence of environmental, social and governance (ESG) awareness, which is considered the benchmark of modern ethical investment practice.

Ethical investing has grown astronomically in recent years. This is down to a combination of factors, not least a growing public awareness of the issues surrounding environmental, societal, and cultural issues – including climate change and inequality.

Shrewd investors understand that backing progressive, ethical brands will pay dividends in the long term. With both societal and governmental pressure impacting how businesses conduct themselves, investing in the right businesses now can be a lucrative prospect in the future.

But ethical investing isn’t just about ensuring fiscal confidence. Many investors want to back businesses that are having a positive impact within their industries and the broader community, seeing it as a way to accelerate positive change on the issues they care about.

What are the main types of ethical investments?

Like traditional funding options, there are many types of ethical investments, with no industry-standard approach. Typically, there are four main investment channels that come under the ‘ethical’ umbrella, including:

  • ESG
  • SRI (socially responsible investing)
  • Sustainable investing
  • Impact investing

This is by no means an exhaustive list of ethical investment opportunities. And with progressive start-ups and SMEs emerging every day, there are a huge number of options when it comes to finding businesses to back as an ethical investor.

Do ethical investments offer a good rate of return?

While there’s more to ethical investment than making money, it remains a priority for most who put their money into such a venture. The question is – how do ethical investments stack up against traditional forms of investment? And do they provide a comparable rate of return?

A few years ago, answering these questions was a lot more complicated, with much ambiguity around the long-term fiscal certainty of ethical investments. Now, however, in a society much more attuned to ongoing environmental and social issues, we can say with certainty that ethical investments offer a similar return to that of standard funding channels – and in some cases, perform much more strongly.

Remember: businesses in every sector are under profound pressure to improve sustainability and working practices. With customers, partners, stakeholders, and governments demanding more action than ever, businesses must act to improve their ESG profile, or risk being penalised and left behind.

Investors understand this, which is part of the reason why interest in ethical investing has soared in recent years. Progressive, forward-thinking brands are the future, and while they may not bring the biggest returns in the short term, they represent a safe prospect for the future.

Researching ethical investment opportunities: things to look for and avoid

Whether you’re new to investing or are looking to diversify your existing portfolio, securing ethical investment opportunities can be tricky. Below, we offer some practical tips on how to find, research and secure ethical investments, so you can start investing in the areas that matter to you.

Enlist the help of an ethical investment specialist

Owing to the growing popularity of ethical investments, many investment and financial advisers now specialise exclusively in ethical funding. So, if you want to invest in an ethical brand but don’t know where to begin, they can provide invaluable help and advice.

Utilising an ethical investment adviser is among the best ways to identify opportunities while ensuring that you get a good return on your outlay. Sure, such a service will come at a cost, but if you want to invest with minimal legwork, it could be a good way to go.

Understand that ‘ethical’ means different things to different prospects

There remains no standard framework to define an ‘ethical’ investment, which means care and due diligence are needed to ensure any opportunities you identify are legitimate.

In the field of ethical investing, a grading scale has emerged to classify opportunities by their ethical standards. Light green prospects are the least ethical, while dark green are the most. Not all businesses and organisations are transparent about where they sit on the scale, however, so careful research is needed to ensure ethical investment opportunities are what they say they are.

Beware of brands that rely on ‘greenwashing’ as a marketing tool

It’s no secret that as environmental issues have proliferated the public psyche, some brands have used this as a vehicle to increase sales and promote their products. A practice that’s become known as ‘greenwashing’, it can be hard to differentiate genuinely ethical brands from those using ESG as a marketing tool, so you need to pay careful attention to a business’ track record and green credentials.

Identifying prospects that use sustainability and the environment solely for marketing purposes can be tricky. You’ll need to rely on your instincts here, while also referencing online information and media channels. The expertise of an ethical investment adviser can also be a great way to separate the wheat from the chaff.

Think beyond climate change and the environment

Many investors new to ethical investing have a tendency to focus solely on the environment and issues surrounding climate change. But with high demand for such opportunities, you may have better luck elsewhere.

The world of ethical investing is surprisingly broad, with opportunities to invest in a myriad of businesses, organisations and products managed in a socially-conscious manner. From racial justice and gender inequality to modern slavery, ethical diversity, and issues surrounding gambling and debt awareness, there are dozens of initiatives out there that can bolster your ethical investment portfolio.

Ethical investing may be a relatively new concept, but it’s something that both new and existing investors should pay attention to. With the government recently issuing its paper on Greening Finance: A Roadmap to Sustainable Investing, there’s never been a better time to invest money into the causes you’re passionate about.


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