ETHICAL INVESTING: NICHE INVESTMENT STYLE

Over the past two years, sustainable, responsible, and impact investing (SRI) has grown significantly in the United States. Based on the US SIF Foundation findings, the total US-domiciled assets under management, using SRI strategies, increased by 76%, from $3.74 trillion in 2012 to $6.57 trillion in 2014. That accounts for more than one out of every six dollars under professional management. Their 2014 report added the assets engaged in such investing practices last year represent almost 18% of the $36.8 trillion in total assets under management.

Ethical investors are heavily engaged in their investment decision. They fulfill their roles as part-owners of the firms they hold shares in seriously, read annual reports and prospectus, vote proxies, and submit resolutions. Since they look after about accountability and transparency, these investors care about the company management and its board. Also, they want to know the corporation’s behavior relative to the environment, human rights, social issues, and workers’ rights.

From a financial point of view, this investment is considered a subpar investment style, but not underperforming. Social investors need not to sacrifice their investment returns for the sake of being good. But like any other investments, it has winners and losers.

Individuals and entities that do not practice ethical investing are not unethical investors. Some of them have no time or confidence to make active investment decisions required to them. Others are not attracted to the idea. But here’s the catch: These people are placing some of their money toward noble causes, intentionally or unintentionally. After all, investing for your family’s future is ethical investing. And if you are putting your capital in a Standard and Poor’s 500 Index fund, you are also investing on numerous good companies.

Ethical investors prefer good over earnings, so they frequently make compromises. For instance, a particular firm with an ethical product may have questionable business norms, or a company performing well on environmental matters may not perform well on social matters. In other words, they face various challenge of not only discovering these complicated issues, but also deciding where to draw the boundary with their investments.

Even people who are not that interested in the environmental, humanitarian, governance, or social issues, which are backed by ethical investors, can benefit from integrating these investing principles into their trading strategies. In general, ethical business standards can generate greater profits and better returns for their investors.

Ethical investing has different names, and socially responsible investing is the most common one. The different types of ethical investing will be discussed throughout this tutorial.