What Is Ethical Investing & How Do You Start?

According to the Australian Financial Review, assets from ethical investment funds jumped 30% in 2020 to a total worth of $1.28 trillion dollars. This means that 40 cents of every professionally managed dollar is now invested ethically in Australia. While there's still a ways to go, this statistic proves that Australian investors are more conscious of the positive impact of ethical investing.

Once only reserved for Wall Street-esque investors with a finance degree, now you can begin putting your money into the stock market for as little as 1 cent. But once you’ve decided that you want to take the plunge into investing, how do you ensure that you’re investing in businesses that actually represent your values?

Ethical investing or values-based investing is a strategy where investors make intentional investment decisions that are aligned with their values and personal ethics. After all, by becoming an investor, you’ll be owning a percentage of the company, so by investing in industries (such as sustainable energy), your investment can help create positive social change. Here's how you can start doing just that.

In our capitalist society, one of the strongest forms of protest is boycotting and voting with your wallet. Money talks, right? In the same way that you shop your values, it’s important to invest with your values as well. Figure out where you want your money to go. Are you happy to invest in large tech companies like Amazon and Facebook? Will you be able to sleep knowing your money is being used to fund weapons, cigarettes or gambling? Do you only want to put money into Australian businesses? 

What is ethical to one person may not seem as ethical to the next. Setting personal boundaries is a great jumping-off point to ensure that you stay motivated. 

Exchange-traded funds or ETFs are a type of investment fund that includes lots of different investments within it. They are often themed around things like industry, location or company size. Think of them as a basket of different shares rather than a singular stock.

Some investment platforms like the Sharesies platform can help you to filter for ethically-focused ETFs with companies that choose to invest in people and the planet — or at least aren’t detrimental to them. These ethical ETF 'baskets' can help you to create an ethical portfolio.

Every investment you make comes with risk. And investing in companies that you see as more ‘ethical’ doesn’t guarantee that they’ll be unaffected by dips in the stock market. Even investing ethically may see you lose money as companies’ share prices chart up and down. This is particularly possible during volatile times such as global crises like the pandemic or the unfolding Russia/ Ukraine situation. No matter how ‘carefully’ you choose, the stock market is unpredictable.

But investing for the future over a longer time horizon, rather than trading every day, could mean you may be less impacted by the highs and lows of the stock market as you ride them out until retirement — or whenever you decide to sell your stocks. 

Overall, investing is about more than just dollars and cents. While it’s important to create financial security for your own future, investing is also a great opportunity to choose causes you want to support with your wallet (or portfolio) and help to build the world you want to live in.