Ethical investing, also known as socially responsible investing (SRI) or environmental, social, and governance (ESG) investing, is a strategy that seeks to align your investment choices with your values. Rather than simply chasing the highest financial returns, ethical investors also consider how companies impact people, communities, and the planet.

At its core, ethical investing involves selecting investments in companies or funds that meet specific ethical criteria, which may include environmental sustainability, human rights, fair labour practices, corporate governance, and exclusion of industries like tobacco, weapons, or fossil fuels. 

For example, an ethical investor might avoid companies with poor environmental records or those involved in exploitative labour, while favouring renewable energy firms or companies with strong diversity and inclusion policies.

There are several types of ethical investing strategies. Negative screening excludes companies or sectors that conflict with your values. Positive screening involves actively selecting companies that demonstrate leadership in ESG performance. Some investors also prefer impact investing, which specifically targets businesses or funds that generate measurable social or environmental impact alongside financial returns.

Is Ethical Investing Right for You?

Ethical investment options are increasingly popular, but that doesn’t necessarily mean they’re the right choice for everyone. To determine whether this approach suits you, consider the following:

1. Your Personal Values
   Reflect on what matters most to you. Do you want to support climate action, gender equity, animal welfare, or anti-corruption practices? Ethical investing allows you to put your money where your values are, but you need clarity about what those values are first.
2. Your Financial Goals
   Ethical investing can still offer strong returns, but the performance of ESG funds can differ from traditional portfolios. Consider your risk tolerance, income needs, and long-term goals. You might find that blending ethical options with traditional investments provides the balance you need.
3. Your Level of Involvement
   Some investors enjoy being hands-on, researching the ethics of specific companies. Others prefer to invest through managed funds or superannuation products with strong ESG filters. Either way, knowing your preferred level of involvement can help guide your strategy.
4. Transparency and Trust
   Not all investments marketed as ‘ethical’ live up to the label. This is where due diligence and advice come into play. Understanding how ethical screens are applied and how funds are managed is crucial.
5. Your Broader Impact
   Consider the satisfaction and peace of mind that may come from knowing your investments contribute to a better world. For many, this emotional and moral payoff is just as important as financial returns.

Top 5 Questions to Ask Your Financial Adviser

To ensure you’re making informed decisions and not falling for greenwashing, here are five key questions to ask your financial adviser:

1. “How do you define ethical investing, and what screening criteria do you use?”
   This will help you understand whether their definition aligns with yours. Some advisers may only exclude controversial industries, while others apply more comprehensive ESG analysis.
2. “What ethical investment options are available through my current super fund or investment platform?”
   Ethical options may already be accessible without switching providers. Your adviser can walk you through the ethical choices within your existing structures.
3. “How do these ethical investments perform compared to traditional options?”
   While ethical investing doesn’t necessarily mean sacrificing returns, it’s important to understand the performance history, volatility, and risks associated with the products.
4. “How do you ensure the investments are genuinely ethical and not just marketing hype?”
   Ask about certifications, third-party ESG ratings, and transparency in holdings. Reputable ethical funds often publish detailed reports on their screening processes and portfolio companies.
5. “Can you help tailor an ethical investment plan that reflects my specific values and goals?”
   A good adviser should work with you to understand what ethical means to you personally and help build a portfolio that reflects your values as well as your financial goals.

Ethical investing allows you to play an active role in shaping the world through your financial choices. With increasing options available and growing transparency in the industry, it’s never been easier to align your money with your morals. Start by clarifying your values, asking the right questions, and seeking advice that prioritises both your ethics and your future.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)