Investment decisions during the last century have mostly been driven by an intense consideration for profit. But our greed for profits has resulted in a world plagued by pollution, climate change, and increasing natural calamities. This calls for a new paradigm of investment — ethical investments that take into account their impact on the environment together with profits.
If you already live with a particular belief system that focuses on protecting and safeguarding the world around us, ethical investment will be easier for you to grasp and practice. Your mind is already willing to trade off certain profits in exchange for a better world, unlike hardcore investors who are solely focused on making as much money as they can even if it ends up damaging the ecosystem.
However, a major confusion most people encounter will be regarding where to draw the line. The truth of the matter is that you will probably not find a perfect ethical investment solution. There will be no stock or project for you to invest in that will not include some kind of pollution or damage to the environment. As such, the focus should be on what you are willing to tolerate and what you are not willing to tolerate.
For instance, you may have two investment options available. The first company might be involved in setting up residential housing in mountain areas by clearing forests on a large scale. The second company may be involved in building condos in hilly areas, with a design that is aimed to blend the architecture with nature so as to do minimal damage to the environment. Though both these projects involve the destruction of the ecosystem at some level, the second company will prove to be a better ethical investment since it clearly is the lesser of two evils.
However, despite the growing interest in ethical investing, the fact of the matter is that our institutions and systems are not prepared to incorporate such a viewpoint in their outlook since they largely operate strictly from a cost-profit mindset.
“There is no MBA module with a solution, and no regulatory lever to mitigate this: all financial endeavour has to be reimagined with the future of humanity as its explicit purpose. Profit was the answer to another century’s problems; if we don’t learn this from 2008, the lessons of 2028 will be far harsher,” warns an article at The Guardian.
Performance of ethical funds
Some investors tend to believe that ethical investment means betting on companies that make too little profit or are so risky that they might not survive for long. This is untrue. Ethical funds have been closely matching and even outperforming traditional investment options across several financial markets.
“We don’t believe you have to [lose out financially if you want to invest ethically] at all, and our track record proves that. The company’s been going for 30 years. The track record of our Australian Ethical shares fund has been going for over 20 years and it’s returned about 10 percent per annum over that period. [That] is about 3 percent more than the market that we benchmark against,” ABC quotes Phil Vernon, managing director of Australian Ethica,l which oversees about US$2 billion in funds.
With ethical funds generating good returns, there aren’t many reasons not to invest in them. Governments and organizations need to conduct programs that educate investors about ethical investments and their potential in the coming years.