Ethical investment – What is it, definition and concept | 2022

Ethical investment is one that we make taking into account a series of ethical criteria related to our moral standards or beliefs.

Therefore, we are facing a way of investing that does not seek profitability, but something else. Thus, we focus on companies that act in accordance with our beliefs and values. In this case, money takes a backseat and we prioritize principles.

But we must not think that profitability is not important, since nobody invests to lose money. What happens is that the investment decision is not only focused on the best price-return relationship, but also on the best relationship between these and ethics.

How to conduct an ethical investment

This type of ethical investment has a process similar to that of traditional ones. In fact, the difference lies in the interest in a series of variables that are difficult to measure and based on beliefs and values. Let’s see what steps it would consist of.

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  • First of all, we need to do some introspection. This may seem obvious, but it is more important and necessary than it seems. We must discover what our priorities are and, therefore, what our investor profile is.
  • On the other hand, you have to decide where to invest. This is the most complicated step, since the economic or financial data of the different organizations do not focus on ethical aspects. Therefore, it will be necessary to read newspapers, specialized magazines or research articles.
  • Once we have made the decision, we must choose the platform or intermediary entity. Here it will help us to have an objective criterion focusing only on those companies that meet what we want. This is what is called applying a lens.
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ethics and sustainability

These two concepts should not be confused. The first, ethics, are beliefs of the person that meet a series of criteria and that focus on behavior. Sustainability is related to environmentally friendly growth that combines development and protection.

Now both are related. An important aspect of ethics is the environment and sustainable growth. We live on a planet that we must protect and care for. In fact, interest in sustainability is growing.

The criteria in ethical investment. The ethical funds

Ethical investment is governed by a series of criteria that, in turn, will depend on the profile of the investor. In fact, there are a number of funds that are classified following this argument:

  • Funds with environmental criteria (ESG). In this case, they focus on environmental protection or sustainability.
  • Socially responsible funds (ISR). In this type of fund, the objective is corporate social responsibility (CSR).
  • Impact Funds. These combine interest in the profitability-risk binomial and ethics in the products or services offered.
  • Religious backgrounds. As the name suggests, they are interested in the religious profile of the investor.

Example of ethical investment

To finish, we are going to see concrete examples of ethical investment and a concept that appeared with it, ethical banking. On the one hand, there are a number of follow-on funds such as the iShares MSCI KLD 400 Social ETF or the iShares Dow Jones Global Sustainability Screened UCITS ETF.

These provide information on the companies with the highest scores in the ethical index (ESG). In this way, there is a certain objectivity that allows the investor to compare companies using this indicator.

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For its part, ethical banking emerged in the 1960s and its objective was to promote the responsible and transparent use of money, including ethical investment. Among the best known in Spain we have TriodosBank, FonRedess or Oikocredit.

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