What is Ethical Investing?
Going Green has been trending for quite some time—reusable straws, solar panels, recycling programs, etc. But we’ve seen an uptick in popularity lately, as businesses are becoming more concerned with making a positive impact not only on the environment, but the population as a whole. Entrepreneurs who may be seeking investors are wise to consider what ethical investing actually is. Could your business benefit from a few changes?
As defined by Wikipedia, Ethical Investing (also called Socially Responsible Investing) is “is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents.” Investors essentially seek to make a positive impact through thoughtful investments of their money. One of the earliest examples of ethical investing was in the 18th century, when Quakers were not permitted to devote time or finances in the slave trade.
Investors will focus on Environmental, Social, and Corporate Governance (ESG) when determining the social impact of a potential investment. To make sure their investments are going to help them achieve their goals, investors will employ tactics such as negative screening, positive investing, and community investing.
Negative screening tactic is what investors use to find companies with ESG weak scores. It’s a method in which investors can weed out the potential partners whose business ethics do not align with what they’re looking for.
Pretty self-explanatory, positive investing involves backing companies that align with what an investor approves of. For instance, if an investor is interested in sustainable energy, they might invest in a company that has a recycling program in place or only makes energy-efficient appliance purchases.
This type of investment is focused specifically on investing in projects aimed toward improving local communities. As noted on US SIF’s site, “Community investing provides individuals and organizations with tools and skills to improve the quality of life for themselves, their families and their communities.”
Investors are interested in ethical investments because it benefits them not only financially, but morally as well. Because the importance of ethical investments is growing, businesses can start to consider changes they may need to make to their practices in order to attract these types of investors.
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