What to look out for when investing ethically

by | May 27, 2021 | Articles, Saving

Sponsored and written by Wealthify

If you’re considering investing, then you may have thought about doing it ethically. But what exactly is ethical investing and is there anything that you need to keep an eye out for? In short, yes.

What is ethical investing?

The term ‘ethical’ can mean different things to different people. But there’s one thing that’s largely agreed on, ethical investing aligns your money aspirations with your values – whether that’s social, moral, or even religious.

There are a number of ethical issues related to investing, from profiting off debt to being invested in activities like weapons manufacturing or oil production. If you’re purely investing to make a profit, then this may not concern you, however a growing number of investors are looking to use the power of investing to improve environmental or social causes.

Looking at the different types of ethical investing

There are many ways that you can invest ethically, but two of the most common practices are Environmental, Social, and Governance (ESG) and Socially Responsible Investing (SRI).

Environmental, Social, and Governance investments offer a scoring system based on those three criteria, allowing investors to easily check up on their investments during their research and evaluation process.

Socially Responsible Investing uses the ESG scoring to help make the decision but tries to find a balance between financial gain and delivering social good. This approach could mean that SRI investments include industries or sectors that you may not always consider ethical – for example, large oil companies who are investing money and resources into developing green infrastructure.

Three Things to look out for

If you’re keen on ethical investing, but want to make sure you’re investing in line with your values, then here are three things you need to consider:

  1. DIY vs Managed Investments – if you’re picking investments yourself, you’ll have greater control over what is included, but it will take more time and research to do. There may be some compromise with managed investments, but it’ll likely be quicker, easier, and the due diligence required to ensure a company fits your ethical criteria will be done by the experts.
  • Fees – typically ethical investments have higher costs due to the additional research and vetting to verify that each business is ethical. But this doesn’t mean you should settle for paying significantly more. Your fees will eat into any profit you make, so it’s worth hunting around for fees that work for you.
  • Watch out for greenwashing – not every company that appears green is actually ethical, so it’s important to do your research, check their credentials and ensure their business model fits with your expectations. If you’re using a managed investment, their team of experts will constantly monitor each company to ensure they remain ethical.

Where to start?

With Wealthify, you can invest ethically from as little as £1, and they have a team of experts who take care of everything for you. They’ll carefully monitor every fund and each company within that fund to uphold the ethical value of your investment, so you can rest assured that your money is being invested in line with your values.

What’s more, every single Wealthify Plan comes with an ethical option – so if you want your pension to invest in a better future, or a Junior ISA to give your kids a greener tomorrow, then all you need to do is choose the Ethical option, the rest will be done for you, removing the complexity from investing.

To read more about ethical investing, check out https://www.wealthify.com/blog/category/ethical-investing.

With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.