In the last ten years, we have seen the barriers of entry to stock market investing disappear, as the internet and apps have allowed anyone to easily invest in the market with a few clicks of a button or touch screen.
Not so coincidentally, we have also seen the rise of ethical investing, as more and more people are investing in companies and ETFs whose values align with their own. This allows them to reward companies who are ethical and, in turn, incentives other companies to evolve their practices to become more sustainable and ultimately beneficial to the world at large.
In this article, we will define ethical investing and impact investing so you can better understand what qualifies as an ethical investment ETFs or company.
What is Ethical Investing?
At its core, ethical investing means investing in companies or ETFs that do good. However, as you can see, that definition has a lot of room for interpretation, as doing good is a very subjective barometer. Every individual and corporation has their own definition of doing good, and some of these interpretations are only surface level.
Typically, when trying to become an ethical investor, the goal is to avoid companies that have a negative impact on the world, either socially or environmentally. Now, no company is perfect, and producing its product or service will almost always take something from society. So the goal for an ethical investor is to find companies and ethical investment ETFs that aim to give back more than they take and, in theory, become a net positive to the world at large.
What is Impact Investing?
Impact investing can be considered an evolution of ethical investing, where you are not only investing in companies that provide a positive value to the world but whose business goal is to create a positive impact on society and the environment. For example, impact investing in sustainable agriculture involves investing in assets that provide returns while also having a positive impact on the environment.
For a company or ETF to qualify as ethical investment, it has to produce a positive value to the world. However, this often results in negative impacts, such as reducing their carbon footprint or improving employee satisfaction.
However, for an ethical investment ETF or company to be considered an impact investment, it has to directly provide a positive impact on the world. This can be easily identified in companies that create green technology, such as electric cars, solar panels, wind turbines, and sustainable farming techniques.
Becoming an Ethical Investor
As you can see, impact investing and ethical investing are very similar, and while impact investing produces more noticeable positive change in the world, it still may not be an ethical investment. For example, a solar panel manufacturer may produce a positive impact, but if their manufacturing process creates a high amount of air pollutants and treats their employees unwell, their net impact will fall on the unethical side of the spectrum. That’s why understanding the basics of becoming an ethical investor is crucial, even if you only plan on impact investing.