It can be difficult to strike a balance between pursuing your financial goals and sticking to your social, ethical and sustainable values. We all want to pursue our financial goals to the fullest degree and maximise profit wherever possible. However, this is not always the ethical thing to do. If you want to leave the world in a better state than you came into it then you need to be focusing on wealth creation as well as acquisition. Ethical wealth creation involves business practices that are acceptable to all and that contribute towards a common good. In this article I will cover the issues surrounding ethical investing, its advantages and disadvantages, and how you can invest ethically yourself.
Wealth creation and ethical investing
It is important to remember that ‘making money’ and ‘wealth creation’ are not the same thing. For example, it is possible for individuals to make exorbitant amounts of money for their organisations but at the expense of the economy as a whole. This would be unethical. Whereas, investing in a local or ‘grassroots’ business will contribute to its success, which in turn will open up new pathways for financial progress in your community. This would be an example of ethical wealth creation or ethical investing. We believe that information on this kind of wealth creation should be more readily available and widespread.
Unlike traditional investing, when you invest ethically, you are not concerned solely with making profit. When you invest ethically you are of course still looking to make some profit, however you are equally concerned with the societal and environmental impacts of the organisation you are investing in. That being said, there is no precise definition for what makes an investment ethical or not.
You must research your investments thoroughly in order to accurately assess the ethical implications of your investment. If you don’t have time to research your investments but you still want to invest ethically, consider hiring a financial planner. At Evolution Financial Planning we provide bespoke, holistic financial advice to every individual, enabling clarity and long-term financial stability for all of our clients. We also have a FREE ethical investment guide available to download from our website if you want a nice introduction to ethical investing.
The advantages of ethical investing
As discussed previously, making profit is not the only benefit of ethical investing. However, the potential to make money by investing ethically is increasing and ethical investing is becoming more common. Between 2014 and 2016 there was a 33% increase in ethical investing. As the popularity of ethical investing increases, so will the pressure on massive corporations to become more ethical in their business practices. Companies who are not known for adopting ethical business practices will not want to miss out on funding opportunities as ethical investing becomes more common. Meaning they are forced to adapt and become more ethical.
This is an example of how investing ethically contributes to the greater good of everyone. We need the big corporations of the world to start becoming more ethical, not only for our own businesses but for the sake of the world we will leave behind for our children. When you invest ethically, you gain more than just the superficial joy that comes with making a profit, you get the satisfaction of doing the right thing.
However we understand that ultimately making a profit is important. So if you’ve been put off of investing ethically until now because you don’t think there is enough profit involved then I would urge you to reconsider. In 2019, ethical investments actually outperformed their traditional counterparts. And with ethical investing on the rise this is likely to become more and more common as time goes on. It is also theorised that companies which adopt ethical business practices tend to be more stable and less likely to be involved in scandals, making them safe and effective investments.
The disadvantages of ethical investing
Whilst we believe that wealth creation and ethical investing is positive and beneficial for everyone involved, this would not be a fair discussion of ethical investing if we did not also discuss the disadvantages. One of the biggest disadvantages of ethical investing is that it can be a lot more time consuming. It can be difficult to find companies who have good morals and business practices that align with your values, as well as being a sound investment for you financially. Additionally, since you are investing based on your personal ethical standards, you are much more limited in who you can invest in. Therefore, working with an ethical Independent Financial Planner (IFA) can be beneficial as your IFA will be able to save you time and find the ethical investment opportunities for you.
Wealth creation and ethical investing is about more than just profits
Ethical investing is on the rise and ethical funds often perform similarly or better than traditional funds. Even though ethical investing takes a bit more effort and research on your part, ethical investing is one of the best ways to reach your financial goals whilst staying true to your values. If an ethical approach to creating wealth became the norm, everyone in the long term would feel the benefits.