It’s often assumed that ethical investing is only for millennials -people that are born between 1981 and 19961. Whilst there is a great interest amongst this generation for sustainable investing, it’s not entirely true that they’re the only ones to care about it. Ethical investing is for everybody!
Is ethical investing just for millennials?
We’ve said it above, the answer is no. Ethical investing isn’t just for millennials, or even Gen Z (or Zoomers as they’re sometimes called). It’s for everybody. Think about it! With the increasing threat of climate change and national conversations around racial equality and social justice, we’ve all become more aware of the ethical issues that require action on our part. Obviously, younger generations may show greater awareness than older ones, but overall, most of us understand that we have the power to drive positive change in society. More importantly, many of us are willing to change our behaviours to protect the environment and help make the world a better place.
One way to do our bit for the future is to put our money to good use, and investing ethically is one way you could do this. Although it’s been around for years now, ethical investing has only just seen its popularity soar in recent years. According to our own survey, a third (32%) of non-investors would consider investing if they could do it ethically – and this includes people from all generations. Amongst investors the interest is even greater, as two thirds (66%) would consider opening an Ethical Plan. Now if we look at ages, we do notice that there’s a better adherence amongst younger people. Nearly half (45%) of 18-34-year olds, who’ve never invested before, said they would consider dipping their toe in the investment world if they could do it ethically2. To summarise, younger adults are more likely to take the ethical path than their older peers, however, to say that ethical investing only attracts millennials would be a bit of a stretch. The truth is that it’s very much for everybody.
How does ethical investing work?
If you’re new to ethical investing but want to take the plunge, it’s important to understand how it works. Investing ethically is simply about seeking long-term growth without sacrificing your values, whatever they may be.
The key principle of ethical investing is that you get to exclude harmful activities from your portfolio – these can include things like gambling, tobacco, weapons, and adult entertainment. But investing ethically doesn’t just mean removing the ‘bad stuff’, it’s also about supporting organisations that are committed to doing good.
You can either decide what to remove and include yourself, or if you’re too busy or don’t feel confident enough to do the picking all on your own, you could invest in ethical funds – these are hampers full of sustainable investments. The great thing about funds is that you don’t need to pick out each individual investment. However, this also means that you may need to make some compromises as the holdings of the funds available may not meet all of your expectations perfectly.
Another thing to note is that ethical funds come in all sizes and shapes, so if you want to hold ethical funds, it’s worth doing your research and understand how they work. Most funds will exclude harmful activities, but the exclusion criteria, as well as the tolerance threshold, will vary between funds. For instance, some funds will apply a zero-tolerance policy to activities they deem unethical, whilst others will accept to invest in organisations profiting from controversial activities, providing no more than 10% of their overall profits derive from such activities.
Many ethical funds will also invest in companies that are striving to have a positive impact on the environment and society. But the way they select companies will depend on whether they’re active or passive funds. With active funds, investment professionals will use a list of criteria to measure the ethical impact of each company they’re looking at. They will assess a number of things that encompass the three key pillars of ESG: environment, society, and governance. They will look at how much energy a company uses, how well its staff are being treated, and how transparent it is when reporting to the public. Then each company will get an ESG score, and if their score is high enough, they will be included in the fund. But active funds don’t just look at best-of-breed organisations, they’ll also consider companies that are working hard to improve their ethical standards. And once companies are selected, they’ll be closely monitored to ensure they maintain high standards and continue to work to improve their practices.
This due diligence isn’t always performed by passive ethical funds and that’s something you should know as an investor, as you could end up with a fund where companies have let their ethical standards slip. The other issue with passive ethical funds is that they use a fixed ESG score to screen companies, meaning they’re likely to overlook organisations that are working very hard to change their practices and do better.
How to open an ethical plan
If you want to open an ethical plan, there are many routes you can take. If you know about investing and are comfortable doing it on your own, then why not give it a try using a DIY investment platform? Doing the picking yourself is a good way to ensure you’re only investing in industries and companies that are aligned with your values. However, the DIY approach can require a lot of work, as you’ll need to research companies, analyse market data, and keep up with the news. So, if you’re busy with life, building your ethical portfolio on your own may not be a good option for you.
If you’re looking for help, you’re in luck as there are plenty of online investment platforms out there that will do the hard work for you, from selecting the right mix of investments to managing your ethical portfolio on an ongoing basis. With Wealthify, you simply need to choose how much you want to invest and what risk level you prefer, and we’ll do the rest, making sure you’re invested in organisations that do good.
References:
1: https://www.pewresearch.org/fact-tank/2019/01/17/where-millennials-end-and-generation-z-begins/
2: Research conducted by Opinium Research among an online panel of 2,004 nationally representative UK adults (aged 18+), between 14th to 17th September 2018. Results have been weighted to nationally representative criteria.
Past performance is not a reliable indicator of future results.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
