Ethical investing has become a popular choice for investors in recent times. During the second lockdown, ethical funds like the ‘Clean and Green’ fund from Plum saw a significant increase in new investors. We take a look at what this surge means for the market.
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What is ethical investing?
There aren’t really any strict rules on what makes an investment ethical. This is because everyone has their own ideas and beliefs about what is ethical or what’s best for the planet.
What’s been on the rise recently are ethical funds. They can come in many different forms, but the main funds are ones that:
- Exclude certain businesses or industries deemed harmful (e.g. weapons manufacturing or non-renewable energy)
- Concentrate on companies considered to have a positive effect on the planet (e.g. socially or environmentally responsible)
The good thing is that there is an increasing number of ways for people to choose their investments. If you have your own investing strategy, you can choose to only invest in companies you’re ethically comfortable with.
Why is it becoming more popular?
Supporting the environment and being sustainable is no longer a fringe movement – it’s gone mainstream.
The amount new investors were allocating into Plum’s ‘Clean and Green’ fund rose from 5.5% in March/April 2020 to 8.9% in November/December.
This is just one example, but it seems like the coronavirus pandemic is encouraging investors to think about how their decisions affect the world around them.
It is interesting that a lot of the increase is coming from new players. This might be due to millennials and younger investors who aren’t motivated purely by returns. Selecting more sustainable long-term investments is a no-brainer for some.
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How can I get involved in ethical investing?
There are some simple ways that you can align your investments with your morals.
If you enjoy the process of selecting your own stocks, you might choose to buy shares in more sustainable industries.
The performance of many ethical funds has actually been pretty similar to their less ethical counterparts. I think if most of us have the option to make a more positive impact with our investments, we’re happy to do so.
Will it continue to be popular?
There are signs that post-pandemic investing is going to continue to grow in a more ethical direction. America is still the biggest economic power and Biden’s inauguration this month has already been a boost for climate change policy. A number of steps like rejoining the Paris Agreement are already underway.
However, things can change pretty quickly. There is still a lot of money tied up in companies and industries that might not be considered ethical. Lots of people out there have been investing for years and are probably reluctant to change their strategy.
Also, many people may have the bulk of their investments tied up in things like pensions, which they have a limited amount of control over.
Ethical investing is a trend that’s likely to increase over the coming years. It’s worth bearing in mind, though, that this doesn’t necessarily mean that it will be more profitable than a more traditional investment style.
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