Responsible investing

Ethical investing is a deliberate approach that seeks to align your investment goals with your core ethical values and moral beliefs. This strategy deliberately excludes businesses and industries that do not echo those principles. For instance, many ethical investors choose to steer clear of sectors such as alcohol, tobacco, and gambling, which are often associated with negative social impacts. Additionally, they may avoid investing in oil companies that contribute to environmental degradation or in firms that engage in practices like animal testing, which conflict with animal welfare concerns.

Ethical investing focuses on companies that meet specific ethical criteria—such as those promoting sustainability, social justice, and fair labour practices—and aims to foster both a positive societal impact and financial growth. This thoughtful investment philosophy supports responsible businesses and reflects a commitment to making a difference in the world while pursuing financial returns.

ESG investing, or Environmental, Social, and Governance investing, refers to evaluating companies and assets based on their adherence to ethical standards in these three areas.

The Environmental aspect examines how a company impacts the planet positively and negatively. Companies excelling here are assessed on their climate change policies, greenhouse gas emissions, and targets. Factors like water usage, conservation efforts, waste disposal practices, and recycling initiatives also play a role. A company must provide data supporting its claims and commit to environmental standards.

The Social component of ESG investing evaluates how companies treat their employees, customers, suppliers, and the communities in which it operates. Factors such as labour practices, community engagement and sourcing practices are crucial.

Governance relates to the company's board of directors and overall oversight. Investors seek companies that offer fair executive compensation, showcase diversity on their boards and management teams, and uphold transparency in their communications with shareholders.

Investors frequently use ESG criteria to identify investments that reflect their values. Typically, an ESG investment aligns with one or more of the United Nations' 17 Sustainable Development Goals, aiming for both financial returns and positive social and environmental outcomes.

There are several benefits to responsible investing, such as:

• Contributes to a tangible, positive change in society and the environment.
• Enables you to invest in something you’re passionate about without sacrificing returns.
• Improves risk management by looking beyond financials to evaluate a company’s climate, social, management and health and safety risks.

To ensure investments meet the expectations of responsible investing, advisers use positive and negative screening tools. Positive screening consists of identifying investments that are best-in-class on ESG criteria. Negative screening excludes certain investments in sectors such as alcohol, oil or weapons.

There are some factors to consider when making a responsible investment, including:

• Does it align with your goals? Will the investment contribute a return on investment in order for you to meet your medium and long-term goals?
• Does it align with your values? For example, is the business sustainable and eco-friendly? Do they have commendable ethics, or does controversy surround the company?

Following the above, what people consider responsible investing is subjective. This means it’s important to get all the details about the investment into businesses before you make an investment.