Eric-Theodore Yepao Explores Ethical Investing and How it Can Work For You
Many investors are beginning to understand the impact of their choices on the world we live in. Both personal and commercial investors have long been interested in ethical investing.
Ethical investing involves taking an investment strategy where the investor’s ethical values (whether they are moral, religious, or social) are of equal concern compared to good financial returns. Many unscrupulous dealers in the investment community and many investors insist that the company they put their money in is socially responsible.
Eric-Theodore Yepao explains how ethical investing works and the questions you should ask when choosing an ethical investment. He also offers an examination of what you should look for when you are deciding what to fund.
How Ethical Investing Works
Investors can choose individual companies for their investment based on their appraisal of the company’s goals and principles or invest in ESG (environmental, social, and corporate governance) mutual funds. Investing in a mutual fund means that you will need to take the investment company’s word for it to choose an ethical investment. However, these funds do have oversight on the corporate level.
Certain ESG funds may have different focus points. For example, a fund may be focused on social justice, environmental protection, or human rights. As an individual investor, you can choose which direction your money will take.
It is essential to understand a fund’s methodology before you choose particular investments. Some funds may simply exclude firms like tobacco and firearms companies and then call themselves “socially responsible” or “sustainable” without funding any companies that qualify for the title. As with any investment, it pays to do your homework and make sure that the fund is what it says it is.
When investment firms set up ESG funds, they generally rank the stocks included based on ESG investing factors. These are the scores that the company receives along an ethical curve. If you want to create a portfolio with an environmental focus, look for stocks with a strong capability for effecting change in the environment, such as a company that uses all renewable energy.
Questions You Should Ask
Here are four questions that you should ask before investing in a sustainable company:
1. What Are the Impacts of a Company’s Products?
Not all ethically responsible companies will have a positive impact in every ESG category. For example, wind farms have an excellent reputation for creating renewable energy. However, they can also cause harm to birds and wildlife in the area. Ethical investors should look into problems like this one, finding out what mitigation efforts the company is making to lessen their products’ negative impact.
Ethical investors should consider the negative impact of their chosen companies when compared to competitors in their sector. For example, a wind farm company’s overall environmental harm should be compared directly to the damage caused by a fossil fuel source of energy like mining coal or burning natural gas.
2. How Do Consumers Use Their Products?
This can be a tricky situation to parse, but Eric-Theodore Yepao presents some useful examples to guide your search.
Not all products that are considered “sustainable” are used productively. For example, a 3-D printer company is mainly considered to be a positive investment because 3-D printers help to focus innovation. However, they can also be a problem if the printers are used for gun parts. Ethical investors should find out what the company is doing to lessen its chances of harming the community.
3. What is the Production Process?
Ethical investments need to be monitored to ensure that all aspects of their production match up with the investor’s principles. For example, companies should be well-known for treating their employees well. When choosing between two similar companies, select the one that treats its workers the best. Many people may be interested in investing in Amazon, for example. Still, the company is criticized for labor, warehouse and distribution, and employees’ labor issues.
One of the most important considerations for a “sustainable” company is to ensure that the company is not encouraging its products to be over-consumed. When companies encourage excess consumption through their marketing activities, their ethical status is up for debate.
What You Should Look For In A Fund
You should look for ESG funds that are well-documented. You will need to know the answer to all three questions posed above as a jumping-off point. When you consider a fund, you will need to know that you can trust the investment firm to create a working vehicle to do good.
Finally, you should make sure that the investment firm has tracked the companies in its fund for a period of time, ensuring that they come up to your standards for ethical investment.
Ethical Investment Can Work For You
When investors think about doing good in the world, their thoughts often turn to ethical investments. Understanding how companies do business and how they make money is key to knowing whether investing in them is an ethical decision.