Lexicon
What is ethical investing?
What is ethical investing? It’s an investing policy grounded in moral principles.
Who sets the principles? The investor.
Ethical investing is essential because ethics nowadays dominate discussions about corporate strategy.
Investors, consumers and lawmakers now care far more about a company’s activities outside of profit-making. They want to ensure sustainable, legal and compassionate success.
Consequently, corporate leaders should know that many investors will spend their money with this in mind.
What is ethical investing?
Ethical investing occurs when investors invest using a moral code.
For individuals, that code consists of personal principles or values. For an organisation, its corporate leaders will have defined the code in writing.
What inspires these codes?
Usually, they are inspired by issues that mean a lot to people. Here are some examples:
- The environment
- Equality in the workplace
- Religious beliefs
- Anti-corruption sentiment
How does ethical investing work?
All investors approach their work with the goal of making good returns. Ethical investors do the same, but their actions always align with their moral codes.
To some, this might look like they’re restricting themselves, potentially denying themselves a chance at making the best investment. To others, it comes off as a more rounded, sustainable strategy – for them and the people their investment affects.
What should corporate leaders know about ethical investing?
First and foremost: it’s a hot topic.
This is mainly due to the rise in popularity of ESG (environment, social and governance) investing – a movement designed to ensure companies look out for their planet, its people, and their own internal functions.
Nowadays, ESG investing commands a lot of respect across the world. It has its share of criticism from the fiscal right, but the tide of attention is tough to ignore.
Secondly, corporate leaders should understand that true ethical investing is about a rigid set of principles, so it is essential to know what these are when chasing capital. There is no point in looking for money when you’re never going to find any.
Is ethical investing the same as ESG investing?
Technically, no, but the amount of crossover can easily blur the lines.
ESG investing is a newer phenomenon with a slightly different context. It is rapidly becoming regulated, corporate investors will adopt official policies around it, and reporting is veering towards international standards.
Ethical investing is a more ‘principle-based’ term, with less of a focus on specifics of how it’s carried out.