Here’s how to know if an investment is ethical

Ruby Layram takes a look at how to spot an ethical investment from a not so ethical one. Here’s what you need to know for socially responsible investing.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Ethical investing is a trend that has captured the market in recent years. Also known as ‘socially responsible investing’, the popular method involves investing in stocks that support positive social and environmental change. However, some seemingly ethical investments may not be quite as good as they appear. To prevent you from investing your money into a greenwashing scam, here’s how to know if an investment is ethical.


What is an ethical investment?

An ethical investment is a stock or fund that supports positive social or environmental change. This could include shares in a green fund, a charity or a sustainable company that is tackling climate change.

Ethical investments are also known as socially responsible investments and are popular among investors who want to use their money for good. Most major brokers offer ethical investment options to traders. 

The rise of greenwashing

The high demand for socially responsible investing has led many companies to take advantage of the trend. As a result, a number of companies may falsely advertise themselves as ethical to attract investors. This means that traders often get caught out by companies that fail to drive the positive social or environmental change that they claim to. Falsey advertising social responsibility is known as greenwashing.

As a result of greenwashing, many investors are wary about investing in so-called ethical stocks. However, when done right, socially responsible investing can be a great way to use your portfolio for good.


How to tell if an investment is ethical

The key to creating a strong ethical investment portfolio is understanding how to spot a legitimate ethical investment from a false one. Here are three things can look out for when making your investment decisions.

1. Ethical standards

For a stock to be listed in the market, the company is required to submit an annual report of its impact on the environment and society. To maintain transparency, companies should make these reports accessible to the public so that investors can see how socially responsible they are.

Before investing in a stock, double-check the company’s ethical standards to ensure that they are being met. This is a great way to spot companies that aren’t doing as much for the environment/society as they claim to be.

2. Accreditations

Another fantastic way to check a company’s social responsibility is to check for any accreditations that they may have. Some awards to look out for include the B Corp accreditation, the UNSDG, Fairtrade and the UNPRI.

To receive these accreditations, companies must meet certain ethical criteria. As a result, the awards are strong indicators that a company is socially responsible.

3. Reviews/ratings

A sure-fire way to get a grasp of a company’s social responsibility is to look for reviews. If a company advertises itself as ethical, it is likely that someone will have reviewed the claim.

You can find company reviews on websites such as Glassdoor and LinkedIn. It may also be a good idea to look for reviews from previous socially responsible investors to determine whether or not the investment is truly ethical.

Ready-made socially responsible portfolios

A great way to ensure that your investments are ethical is to invest in a ready-made socially responsible portfolio. Experts create these portfolios to provide investors with a selection of stocks and shares that are ethically sound.

Investing in a ready-made portfolio is a good way to reduce the amount of research that you have to conduct. Investing in a ready-made portfolio is also a great way to reduce your chances of investing in a scam. Our list of top-rated share dealing accounts is a great place to find a broker that offers a socially responsible portfolio for you to invest in.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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