For some, the word ‘investment’ can conjure up images of city banks, fat cats, and money bags. But in today’s socially responsible society, investing is as much about principle as it is about profit. It seems businesses and their investors are paying attention to the needs of socially conscious younger generations who want to do some good with their money whilst saving for their future – a mutually beneficial business transaction.
What type of investment could be classed as ethical?
In a nutshell, ethical investing means investing in a way that is aligned with your own beliefs and principles. This means that it will look a little different for everybody – you may choose to only invest in companies that are aligned with your political or religious beliefs, for instance, or to avoid investing in certain industries (often gambling, tobacco, alcohol or firearms).
It could also mean choosing to get involved with Sustainable Investment, the related but distinct principle of investing in organisations that are doing social or environmental good. This is sometimes referred to as ‘impact investment’.
How to Get Involved
With the growing popularity of ethical investing, many are looking to get in on the trend.
The first step is to determine what sort of initiatives or businesses you’re interested in supporting: for instance, those with solid policies to limit pollution during production, or businesses built for the benefit of their employees. You’ll also find several equity funds out there that only invest your money in, say, sustainable businesses, and many of the biggest investment brokers now offer this service.
If you are seeking the expertise of a financial adviser, they should be able to help you align your investments with your moral principles.
Another Way Forward
The introduction of peer-to-peer (P2P) lending has democratised investing – for some people, this will be seen as a positive ethical stance in and of itself, helping to make investment accessible to more people.
For savers and investors, P2P lending differs from traditional savings. Ordinarily, you’d stash your cash with a bank, which invests it at will and passes on fixed interest rates to you. The peer-to-peer method cuts out the bank. You can then put your money into companies aligned with your values. This also often offers a higher rate of return compared to your bog-standard savings account.
It’s worth researching the many different P2P lending platforms available to you. While some, like Crowd2Fund are focused on helping UK businesses, others, such as JustISA support individuals in need.
The Innovative Finance factor
Before continuing with your investment, you could also check whether your chosen P2P platform offers Innovative Finance ISAs (IFISA). With an IFISA you can invest up to £20,000 during the tax year completely tax-free. This could be a good option for those looking to maximise their returns.
Ultimately, ethical investment is whatever you decide to make of it. FTAdviser quotes Richard Eagling, MoneyFacts’ head of pensions and investments, as saying: ‘With every passing year, the traditional view that investing ethically entails sacrificing profits looks increasingly outdated. In our latest survey, ethical funds have more than held their own, performance-wise. The figures support the view that sustainable practices and good governance can give companies a competitive advantage.’ As such, ethical investing shouldn’t be dismissed as a mere millennial fad – and is a viable platform for your money.