
Define Your Criteria
The first and most important step to investing ethically is to decide what ethics matter to you in your investing decisions. Examples of just some of the principles you may decide matter to you in where you invest your money include the following:- Environmental Issues – Such as companies using recycled and renewable materials in their practices or involved in environmental solutions to everyday problems.
- Religious Beliefs – Such as organizations whose owners are proud practitioners of a religion or businesses involved in supplying, building or otherwise supporting religious institutions.
- Political Affiliation – Such as companies owned by those with a political affiliation or company practices aligning with your political beliefs like diversity in hiring.
- Industry – Such as businesses not involved in the proliferation of firearms, alcohol, gambling, cigarettes or other “sin” industries.
- Social Factors – Such as community involvement or a commitment to human rights.
- Labor Practices – Such as hiring policies, employee pay and workplace practices and environment.
Evaluate Companies
Defining your ethical criteria is, unfortunately, the easy part of investing ethically. The harder part comes in evaluating companies to find ones meeting your ethical criteria. Reading a company’s message and operating guidelines is a good way to get an idea of a company’s focuses and values. Reading its regular quarterly and annual reports can help you analyze how much and how well the company implements its values in its business practices. Of course, all this information comes from the company itself, which makes it inherently biased. Related Article: Types of Investments Not all companies live up to their own standards. It is also useful to read third-party analyses and investigations of the company, such as newspaper and magazine articles and broker and relevant oversight agency reports on the company. Fortunately, many online brokers also offer convenient filters for various ethical criteria in their stock screeners. Simply select the criteria most important to you and review the results. If you get too many results, simply refine or add criteria. If you do not get enough results, loosen or remove some criteria.Apply Standard Investing Criteria
As you evaluate companies, remember, your ethical criteria may be your primary filter for identifying and ruling out companies, but your evaluations cannot stop there. To determine which ethical companies make wise and potentially profitable investments, you must then analyze each company according to common, proven investing standards. The two most common forms of analyzing investments are fundamental and technical analysis. Fundamental analysis focuses on a company’s prospectus and financial statements. Technical analysis focuses on a company’s performance on the stock market. You may choose one or the other form of analysis to evaluate your choices or you may choose both. Just do not choose neither and skip this step altogether. Too many investors lose money in both ethical investing and regular investing alike by making decisions on instinct, impulse, recommendations and other non-scientific methodologies. Do your due diligence and make sure each ethical company you identify is worth your investment.Use Ethical Investor Tools
Many organizations have developed tools to help ethical investors identify the companies aligning with their principles. Among these tools are screeners and indexes including:- Global Reporting Initiative (GRI) – Develops reports on companies’ social responsibility, including environmental fines, contracts that underwent human rights review, employee with collective bargaining coverage and other sustainability issues.
- Social Funds Corporate Research Center – A search tool revealing independently created profiles of companies focused on their history in relation to social responsibility.
- American Customer Satisfaction Index (ACSI) – Identifies companies with high customer satisfaction levels on factors of customer loyalty, customer complaints, perceived quality and value and customer expectations.
- Calvert’s Social Index and Know What Your Own Service – Two services are available from Calvert, an investment research firm and brokerage focused on responsible investing. The former pares down the 1,000 biggest companies in the U.S. into those meeting standards of ethics and governance, environmental stewardship, product impact and safety, workplace quality, internal operations, community relations and indigenous peoples and general human rights. The latter lets you search mutual funds based on issues you care about.
Consider Funds
As you can imagine, one of the greatest challenges many people have with investing ethically is all the time-consuming research involved in finding companies meeting their ethical criteria. Even using stock screeners to find investments takes time. Before letting this discourage you from your desire to invest ethically, give mutual funds and ETFs some consideration. You can find specialized funds and ETFs using the same or similar ethical criteria themselves in identifying the investments they contain. Related Articles: Investing in Riskier AssetsBy Admin –
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