What's an Ethical Investment Fund?

Why Invest in an Ethical Investment Fund

The 21st Century is a very fast-fashioned & consumer-cultured system which results in lots of impulse purchases & waste. Just take a moment & think about the last time you saw a chunky boot or pastel bucket hat & didn’t rush to upgrade your closet. It might have been even that classy watch you decide to get yourself three months before your birthday. Everyone, especially millennials, has at one point engaged in impulse buying. If you stick to your budget or fix that bag rather than replacing it when it gets a tiny tear, you can be surprised at the amount of cash you’ll be saving every month. You see, rather than going out clubbing you can choose to stay indoor, spoil yourself with a chilled glass of Pinot Gris, & watch your favourite show – that can save you thousands! You might be pocketing €750 in savings every year, which can boost your pension fund. By ten years, you could end up having €90,000 in savings – all thanks to not treating yourself to the latest Chanel bag every month. However, even with all that said, you also need to make sure you contribute to the right financial product that’ll help you have the best time in retirement. Lucky for you, here’s a comprehensive guide to an ethical investment fund1 – a retirement savings plan that enables you to achieve all your sunset years goals!
What’s An Ethical Investment Fund

The Ethical Investment Fund Explained

An ethical investment fund is an investment strategy in which investors of a firm’s ethical values (social-cultural, moral, and also religious) are the main objective, together with excellent returns. Investors are also supposed to prioritize ecological, social, and governance (the ESGs) concerns in their investment choices.

With the number of suspicious and illegitimate investment products shooting up, most investors are starting to ensure that firms make social-conscious investments. It can mean treating staff members with respect, producing healthy products, offer consumer-conscious services, and abstaining from disreputable business practices.

How Do Ethical Investment Funds Work?

Have you ever wondered how Ethical Investment Funds work?

There are a variety of responsible investment decisions you can make, and the approach that ethical investment funds take is based on the investment criteria and the ultimate goals. The three main strategies include:

Engagement

The engagement investment strategy involves tactically engaging with firms and organizations to endorse socially responsible corporate practices. It could include practices like diversifying the firm’s board of directions or being at the forefront of the ‘green world movement’ through their carbon emission targets.

Exclusion

The exclusive tactic strategically avoids investing cash in firms and organizations that don’t meet specific criteria or that participate in activities like the production of heavily ‘frowned upon’ products like oil, tobacco, and firearms.

Preference

In this investment strategy, particular sectors aren’t excluded. Instead, the finance manager evaluates every industry and looks for the best-in-class firms to invest in, based on their ‘socially responsible ‘criteria.

Now:

At times, a money manager will implement one of these strategies, and at times a mixture of the three will be employed. Ethical investment funds can also be categorized by how stringent their principles are. For instance, an ethical investment fund that features strict exclusions in place is known as featuring a ‘dark green’ ethical strategy. In contrast, the funds that pay attention to the engagement investment approach are referred to as ‘light green.’

The Types Of Ethical Investment Funds

The Types Of Ethical Investment Funds

Responsible investments are today, becoming trendy, and there is a myriad of ethical investments to choose from. Some of these include:

Environmental, Social and Governance Funds (ESGs)

These investment products1 consider how the environmental, social, and governance risks and prospects will have an impact on the firm’s performance. Here, an ethical firm will invest sustainably while also maintaining the same level of proceeds as they would with a basic strategy.

 Socially Responsible Investing Funds (SRI)

The SRI funds don’t invest in controversial firms or industries like firearm manufacturing, oil companies, gambling dens, tobacco, and alcohol production. In these investment funds, the investor’s moral value is essential than the financial returns, unlike with the ESG funds.

 Impact Funds

These place equal significance on the fund’s performance. Therefore, they actively consider establishing ethical changes with a company’s products and services. Impact funds are ideal for those investors who are socially conscious but also want excellent returns.

Faith-Based Funds

These investment funds only focus on stocks that heed religious values and don’t include investment opportunities that don’t fit in the category.

Others come in the shape of ISAs, or pension funds – what they invest in is what makes the difference. Some ethical investment funds will not include producers and firms that sell meat, seafood, poultry, and dairy, thus making them an ideal fit for the vegan community. Other funds exclude firms that engage or haven’t made a stand against human rights abuses.

It is good to know that,

If you have specific investment considerations, then it’s best if you considered perusing through a funds’ factsheets since that will offer a deep dive into what you’re prescribing. It will also let you know if you’re ethically making the right investment decision. You can also consult the fund administrator for more information.

Advantages of Ethical Investment Funds

Advantages of Ethical Investment Funds

Ethical investment schemes offer a variety of perks which include, but aren’t limited to:

  • As an investor, you feel comfortable investing in a firm that supports your values. You benefit not only emotionally but also financially if the values also match their dedication to making money
  • As more people invest in a specific ethical investment fund, the investments triple and that guarantees you a substantial amount in the future
  • Since ethical investment funds are gaining popularity, it’ll offer other companies the opportunity to improve their ethics to attract investors 
Disadvantages of Ethical Investment Funds

Disadvantages of Ethical Investment Funds

Like all other financial investments, ethical investment funds have some drawbacks, which include:

  • Since ethical investing isn’t a passive approach, it involves a lot of commitment and work. You have to research and conduct due diligence to make sure that the firms’ beliefs and practices align with your values
  • Ethical investment funds don’t necessarily offer you optimal returns. Thus, you can be sacrificing financial profits for the ethical strategy
  • The charges for ethical investing can be ridiculously high because of the amount of research involved with determining the ideal investment

Where To Invest An Ethical Investment Fund

With ethical investing becoming a market favorite, today, most of the prominent investment firms provide an ethically dedicated fund. For instance, PensionBee, one of the most popular pension plans investment firms offers two ethical investment funds that are designed to cater to the needs of those who want to invest their capital in line with their ethics. They offer the Future World Plan and the Shariah Scheme.

The Future World Scheme, for instance, focuses on sustainability and stewardship in ecological, socio-cultural, and governance matters. It invests in hundreds of firms around the world, who have owed to switch to the green economy – from the carbon economy to a 100% renewable energy source. The investment fund is managed by Legal & General (L&G).

The Shariah Scheme, on the other hand, invests in Shariah-compliant funds which are part of socially responsible capitalizing the Islamic beliefs mold that. All the investment decisions are sanctioned by an independent Shariah committee that works closely with the fund administrator HSBC2.

Here’s the best part:

You don’t have to kick your values to the curb when it comes to investing. You can make smart financial decisions while also catering to your principles and values. If you don’t love fish then there’s no need to invest in a firm that retails fish products just because they excel financially – you don’t want to spend the rest of your financially rich life haunted by fish. All you have to do is conduct research and choose an ethical investment fund that suits you best and thrive emotionally and financially – don’t settle for anything but the best!

Got Questions? Check These First

What's An Ethical Investment Fund?

Is Ethical Investing Possible?

What Are the Types of Ethical Investment Funds?

Why is the Ethical Investment Fund Important?

In conclusion

As the world moves towards a more sustainable future, investing in companies that are doing their part is essential. If you want your investments to be aligned with your values and beliefs, then an ethical fund may be for you. There are many different types of funds, but we recommend going with one that invests in renewable energy or clean water initiatives to do good while also being profitable.

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