The world is facing unprecedented challenges related to climate change, third-world poverty, and the global refugee crisis. In response, many investors are turning to sustainable and ethical investing to address these issues while simultaneously achieving market-rate returns. A recent report by Nielsen found that 63% of millennials consider corporate social responsibility when making purchases.
Ethical or socially responsible investing (SRI) is a strategy that impacts investment performance by considering potential financial returns and the social impact of those investments. Investors can get started in this space by learning more about its different strategies, including green and sustainable investing.
This guide will help you understand what ethical investing is, what benefits you can expect from it, and how you can begin putting your money where your values are.
What Is Sustainable Portfolio Management?
A sustainable portfolio ensures that your investments are ethically, socially, and environmentally responsible. Therefore, sustainable portfolio management is a sustainable investing strategy that seeks to invest in organizations that produce goods or services that advance society and the environment in a positive way.
These kinds of investments are often referred to as impact investments, a term that describes financial investments that generate measurable social or environmental benefits in addition to a financial return.
Sustainable investing is a long-term investment strategy considering environmental, social, governance (ESG), and reputational risks associated with different investment sectors. Sustainable investing helps investors achieve long-term financial goals while supporting positive social and environmental change.
Sustainable investors might use tools like social impact assessments and carbon footprint analyses to assess the social impact of investments. Sustainable investors tend to focus more on smaller, more impactful companies than traditional investors.
Sustainable investment can potentially create real, positive change in the world. It is, however, a fairly recent phenomenon. It was only in the 1990s that the financial industry began to take ESG issues seriously.
Benefits of Ethical Investing
Impactful Investments
Sustainable and ethical investing is about finding ways to impact the world positively by addressing some of the most pressing issues of our time, including climate change and third-world poverty.
The goal of ethical investing, after all, is to create an investment portfolio that delivers both financial and social benefits.
Long-Term Performance
Ethical investing investors often look at the long-term financial benefits of their decisions. They consider short-term market fluctuations to make informed decisions that will positively impact over time.
Reduce Risk
Although ethical investing can be more challenging than conventional investing; it can also help investors reduce the financial risk associated with a portfolio.
Tips on How To Get Started in Ethical Investing
If the benefits of ethical investing sound appealing to you, here are a few tips on how to get started in this space:
Educate Yourself
One of the most important things to do when getting started in ethical investing is to make sure you are educated on the different factors that impact this type of investing. Ethical investing is not as easy as conventional investing, so you must ensure you’re taking the right steps to get started.
Talk to a Financial Advisor
Ethical investors should be sure to consult with an experienced financial advisor to design a tailored investment strategy that meets their unique needs. They can help you seek out sustainable, responsible, and impact investing funds, especially considering you will likely have fewer investment options to choose from as an ethical investor than if you were to invest only for financial gain.
Find Like-minded Investors
Ethical investing isn’t for everyone. If you’re interested in this type of investing, it’s important to find investors who have the same values that you have. Try and take advantage of their wealth of knowledge and experience in this field to find more ethical investment opportunities.
Wrapping It Up
The world is changing fast, and new movements like the impact investment movement are growing exponentially. As a result, investors have more opportunities to invest their capital in a way that aligns with their personal principles and beliefs.
If you’re serious about investing, you’ll have to take a stand on what you believe sooner or later.
Hopefully, this article has broken down everything you need to know about sustainable portfolio management for you to get started as an ethical investor.
