Today’s world is increasingly interconnected and more aware of the consequences of our actions. People are starting to recognize that businesses have a role to play in making the world a better place for all.
In fact, investing with an eye toward sustainability has been on the rise over the past few years. According to the Global Sustainable Investment Alliance, assets managed with social and environmental responsibility in mind grew by over 50 percent between 2014 and 2020.
This doesn’t mean that people are putting all their money into ESG (environmental, social, and governance) funds; rather, they’re making smarter investment decisions and considering their values when choosing which companies — and which types of companies — to back.
In response, many companies have begun catering specifically to this growing market. This article covers everything you need to know about ethical investing and how managing a portfolio sustainably is very possible.
What Does Ethical Investing Involve?
As the name suggests, ethical investing is all about investing in a responsible and sustainable way. Instead of solely focusing on making a profit, you’ll want to consider the long-term impact of your portfolio on the world around you.
Ethical investing is not simply a matter of avoiding nefarious companies. Indeed, it’s possible to be unethical even if you’re investing in a completely clean industry. You’ll want to look at a company’s entire business model to see if it’s sustainable. For example, you may want to avoid investing in commodities produced via unsustainable practices. Or perhaps you’d like to invest in renewable energy companies that have the potential to change the world for the better.
Managing a Portfolio Sustainably: How To Go About It
As mentioned above, ethical investing involves more than avoiding a few shady companies. Instead, you’ll want to ensure that your entire portfolio is sustainable. Fortunately, there are a few different ways you can accomplish this:
Invest in Cleaner Technologies
One important way to invest sustainably is to diversify your portfolio into cleaner technologies. For example, you might choose to invest in solar energy companies that are helping to reduce the world’s dependence on fossil fuels.
Invest in Companies with Ethical Business Models
Another way to invest sustainably is to ensure your portfolio is full of ethically run companies. After all, the products and services these companies offer are likely to be in high demand for years to come. Clean energy, for instance, is expected to make up a growing portion of the world’s energy supply for decades.
Invest in Sustainable Commodities
You can also invest sustainably by diversifying into commodities that are produced in a sustainable manner. This can help you avoid the human rights violations and environmental destruction that is unfortunately common in some industries.
Choose Socially Responsible Funds Wisely
Funds are typically much easier to invest in than individual stocks and bonds. They’re a great way to diversify your portfolio and minimize risk. Wise investors will take a few extra steps to ensure that their funds are socially responsible.
You can use a few indicators to determine if a fund is ethical. The first is a fund’s investment policy statement. This document will detail exactly what kinds of industries the fund invests in. It may also outline the fund’s approach to sustainability.
You can also look at a fund’s track record, which should tell you how it has performed in the past. You should also check out the fund’s manager to ensure he or she has a solid track record. Finally, you can read the fund’s annual report to learn more about its philosophy.
We hope this article has helped you learn about the importance of ethical investing and why outsourcing your financial bookkeeping can be a good idea. We believe that businesses are responsible for acting ethically and sustainably, and we encourage you to do the same with your finances.