One common approach in ethical financial management is to engage in negative screening. This involves selecting industries and areas that you definitely do not want to be involved with such as gambling or the arms industry. As ethical investing becomes more popular, the list of potential concerns is quite extensive. If you are currently looking to adopt an ethical approach to your finances, you have probably already got some areas that you want to exclude. If not, here are some of the popular ‘no-go’ areas for many ethical investors and some of the concerns that they prompt.
Third World Debt
Is there a commitment to helping third world countries tackle their debt crises? Some banks have a history of lending to poor countries, who then use it to buy things like arms.
Banks may choose to not be involved in lending directly to companies involved in the arms trade or who are involved in supplying arms to regimes but this does not necessarily mean that they have no involvement in the arms trade. In some cases, banks may allow investment in this area on a case-by-case basis.
Some banks will happily lend to companies with poor working conditions and/or who are not against child labor so if this is something that you feel strongly about, you will not want to support financial institutions with this type of lending practice.
Many investors now want to know that they are supporting a bank which cares about the environment. Some banks have previously lent money which has gone on to pay for rainforest deforestation. Supporting environmental issues may involve restricting their lending solely to companies who benefit the environment but it will may also extend to encouraging their creditors to take steps to benefit the environment such as saving energy and reducing emissions.
Are you against animal testing full stop or are you happy to support a company who conducts animal testing solely for medical reasons?
If you are a non-smoker, you may not be happy to know that your money is being used to support this industry.
If you are religious (and even if you are not), inadvertently supporting companies who are involved in or promote gambling will not sit right with you. The same may also be true of pornography.
Some companies have a strong commitment to supporting charities. This may be for national charities but some financial institutions may also encourage staff to get involved in local causes and may match funds raised.
Social and Financial Exclusion
There are still millions of people who do not have access to even basic financial products that most of us take for granted, such as bank accounts. Unsurprisingly, this can have a major impact on their day-to-day lives and many live in deprivation as a result. Does your bank take any steps to tackle this problem or are they actually contributing to the situation? For example, do they advertise directly to sections of society who are vulnerable to debt problems? This can be a problem for credit card companies, who do not always act in a ethical manner when looking to hook new customers.
This is based on similar principles to ethical financial management. Shariah (Islamic law) seeks to protect the five fundamental aspects of Islamic society – faith, life, wealth, intellect and prosperity. To this effect, companies whose activities do not fit this are screened out, which typically means that the likes of alcohol, tobacco, gambling, arms and pornography are out of the question. Under Shariah, you cannot receive interest but you can receive dividends on shares. Islamic banking is available through Islamic institutions but also through some Western banks.
As you can see there are various questions you can ask and areas you can look into to determine how ethical a potential investment might be. I always recommend you do thorough research prior to purchasing an investment so that you can sleep well at night knowing you aren’t supporting anything you feel strongly against. It may take some time but it is worth it in the end.
So, do you invest with ethics in mind? What kinds of things are you against?
It’s an interesting concept and it is becoming more popular, but I don’t invest with ethics in mind. If I did, it would really leave me without anything to invest in.
I haven’t thought about it a lot but this is something I really need to weigh as time passes. I’m not sure what I’d do.
Believe me it isn’t easy. There are limited options when it comes to investing ethically. The thing to remember though is that we are all different and so are our ethics which means each investing strategy will also be different. I know we need to save and invest but supporting things like arms isn’t something I really want to do.
I’m not investing yet (still paying off debt) but ethical investing is something that is very important to me. Unfortunately I haven’t the faintest clue where to start, this post has given me a bit of information to think about, thanks!
Glad to hear you are getting your debt paid off. When you do start investing make sure to invest with a sound mind and do your research ahead of time. It will save you the guilt and stress later.
I personally don’t. I just but mutual funds and chances are I own some of these things. I am OK with it though, just part of investing.
As long as you are ok with what you are doing that is what matters. What I often find though is that people haven’t even thought of things like this and then it catches them off guard.
I have to admit – I barely can decide what to invest in without taking ethics into consideration.
Me too. I get limited but I feel much better knowing I am not profiting off of something I am against.
Great thoughts. Increasingly, this is becoming a concern. It is duplicitous to live a moral life and then to invest in things contrary to your beliefs. I suspect that I may have to spend even more time evaluating this issue in the future.
It is definitely a topic that seems to get more discussed these days. People are trying to live with more awareness of their actions. It takes a lot of research and you do get limited but to me that is an ok price to pay.
I agree that it does seem worthwhile to learn more about where you are putting your money into. That way, you can at least believe in your investments. I wonder how much of this is a generational thing.
I feel the need to believe in my investments. I want to contribute to things that are going to make a difference for the good not add to the heap of problems. I think the newer generations in some ways are more gutsy in expressing how they feel and won’t be so good at taking no for an answer. They try to find a way to make what they want happen. If they want to invest ethically, they will find a way to do so.
Good point. There are things that aren’t good that do generate profits that we would ideally like to have. However for me, I need to be able to sleep at night. I haven’t perfected it by any means but I do a lot of research on things before I invest. There are limited options but there are also other ways you can build wealth other than investing. Real estate is a great example.
Thanks for writing this – I have been getting very interested in ethical investing and you have managed to synthesise the main points of it. It seems to me that after the ‘age of bold consumerism’ we are likely to enter an ‘age of ethics’ – at least I am hopeful.
Let me know if you figure out any tricks. Ethical investing can get tricky. I like the ‘age of ethics” term. Very good.