Can You Make Money While Investing Responsibly?
According to a recent survey by GoodMoneyWeek, “women who do have investments are 17% less likely than men to be concerned about making money on their investments over wanting to make a positive difference to the world”. Another trend highlighted in the research was that “more women (42%) than men (33%) say that they are spending their money in a more ethically conscious way than they did 10 years ago”.
And it’s nothing new. For decades now the personal finance industry has responded to a desire for ethical investing by offering a number of products with positive ‘ESG’: environmental, social and governance values.
What is ESG all about?
ESG factors are non-financial performance indicators - think sustainable, ethical and corporate governance issues (like managing company’s carbon footprint, ensuring accountability and being an equal opportunities employer).
How do they decide which industries to avoid?
It depends. If they are operating under religious law, such as Sharia, then companies that have anything to do with pork products, sex or betting would be excluded. Mainstream investment funds often take ESG in to account when managing portfolios but wouldn’t completely exclude a profitable option if it doesn’t make the ethical grade. They may refer to the European Federation of Financial Analysts Societies’ list of key performance indicators (KPIs) which include greenhouse gas emissions and energy efficiency, as you’d expect, but also more subtle markers such as litigation risk, corruption, staff turnover and absenteeism rates.
OK, what about the bottom line.
At the end of the day, an asset manager wants to make money. For you, the client, and for herself too. No one is going to bother working on an investment platform that fails to bring decent rewards. Sometimes, the trend in global markets can make ethical investments come out on top, such as in recent years when oil and gas have taken a nosedive and ethical investors were completely insulated from the slump.
However, long term, some analysts say that restricting yourself so strictly to whiter-than-white (or greener-than-green) companies will never make you a big profit. It’s just not how making money works. You’ve got to go where the big business is if you want to earn a lot. And big business, thanks to our human hunger for profit, is never going to put ethics first.
So is it worth it?
As Tony Robbins says, it’s important to use your money to make you feel empowered. That might mean accepting a little less profit in order to sleep easy at night, knowing you’re pension pot isn’t funding arms dealers. Or it might be using a mainstream investment package but skimming 10% off its yearly profits from it to give to charity. Or maybe, for you, it’s about earning enough to give yourself half a day off per week to volunteer your time and skills to help others. As with all things in finance and life, arm yourself with the facts, decide what you can compromise on – and know there will always a compromise – and just try to do the right thing.
Want to know more?
You can head to Morningstar for a guide to sustainable investing here.
You can also research ethical products here on YourEthicalMoney.
The Ethical Investment Association (EIA) is an association of financial advisers from around the UK, dedicated to the promotion of green and ethical investment.