INTRODUCTION TO ETHICAL INVESTING
Since time immemorial, investors look after better profits and income paying stocks. While many consider themselves as ethical investors, the common notion about this investing is they have to forget generating huge profits to uphold their values. This tutorial will go through the overview of ethical investing and the things that constitute such investing.
Different investors have various definitions of ethical investing, depending on their beliefs. Each investor has differing ideas about what it entails, as well as several priorities they want to support with their investment capitals. Therefore, ethical investing does not have an exact definition and is highly subjective.
Primarily, an investor uses his own ethical principles to choose the securities he want to invest, in line with his perspective. Some may opt to wholly remove certain industries, but others may want to place a huge part of their capital on industries that meet their ethical guidelines. For instance, a company benefiting or are engaged in the reduction of climate change.
In essence, the objective of ethical screening is to protect traders from future losses. ""Well managed companies, committed to strong sustainability and good governance, generally demonstrate superior long term performance. The omission of companies that don’t deliver on these practices is simply another layer of risk reduction," said Hubert Aarts, Senior Fund Manager and Managing Director at Impax.
On the other hand, ethical investing is a method of earning returns in the financial markets by supporting firms that are creating positive change in the world, or in some instances, that do not uphold positive change but are not making the world worse, either. Traditional ethical funds, also called dark green, have very strict investing approach. It automatically remove stocks involved in unethical industries, including alcohol, animal testing, firearms, or gambling. Conversely, socially responsible investment or light green funds merely venture in best of class, meaning firms that are more upright than their counterparts throughout all industries.
Such investors desire to reach their financial goals without compromising their principles, which means they want to establish a stable, well-diversified portfolio while investing ethically. Their investing decisions are normally part of an overall strategy for ethical living such as values-oriented decisions on work, housing, transportation, and shopping, among other facets.
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