As more stakeholders continue to shift their attention to socially responsible investments, it’s worth knowing the benefits of ethical investing that go beyond moral values.
If you’re smart with your investments, your portfolio can benefit companies that have a higher focus on environmental, social and governance (ESG) risks, as those companies are receiving increasing interest.
We enlisted Josh Gilbert, Market Analyst at the online trading platform eToro, to give us some insight into the world of ethical investing.
Why does ethical investing look better on your portfolio?
Ethical investing allows people to invest in stocks or companies whose practices align with their personal beliefs. You can feel good about your investments without compromising your morals or ethics, while also helping improve the world around you.
Are there financial advantages to invest ethically?
Investing ethically is investing in companies with a big focus on ESG risks. We have seen investors becoming more and more interested in sectors such as renewable energy.
Sustainable energy products continue to become more mainstream and many countries are continuing to advance their zero carbon emission targets. In 2020, Invesco Solar ETF returned in excess of 200 per cent, showing that investing ethically can be rewarding.
Is it relatively easy to find ethical investment opportunities? What are some basic tips to help?
It’s not necessarily easy to find ethical investment opportunities and often requires a lot of research and analysis into individual stocks. The best way to start would be looking at exchange-traded funds (ETFs) that do the research for you, meaning you can simply invest knowing that the ethical side of these stocks has been researched.
It is still key to do your research on these funds to make sure they align with your personal values.
A tip to start your own research would be checking a company’s ESG rating which can be done via pages such as the MSCI’s Calculator. Simply enter a stock and see how it ranks.
eToro’s CopyPortfolios are also a great place to start. For example, the Renewable Energy CopyPortfolio can give you a sense of the major players and overall performance of the renewable energy sector.
How has investing shifted over the past 5-or-so years and what are people distancing themselves from now?
We can see that the biggest change recently has been the move away from fossil fuels and into renewables. Previously ethical investing may have been removing stocks such as tobacco or alcohol from your portfolio. Investors are now primarily focusing on impacts on the environment and society.