Everyone wants to make money, and investing — if you can afford it — is a good way to increase your personal wealth, gain more financial freedom and get closer to getting ahead instead of just getting by. But more and more investors are concerned not just about profits but also about the way in which those profits are being created.
Ethical investing isn’t new, but it’s gaining traction thanks to the growing number of socially and environmentally conscious younger investors. For these younger investors, the “how” is just as important as — or even more important than — the “how much.”
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Keep reading for a look at ethical investing, what it means and three easy ways you can make sure your investments line up with your personal ethos.
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What Is Ethical Investing?
It’s obvious that ethical investing, sometimes called socially responsible investing, differs from traditional investing in that investors consider the activities of the companies being invested in. However, a deeper understanding of the term is useful in order to know how the strategies below can be successfully applied.
Ethical investing is based on an investor’s personal values and moral compass, as well as conventional financial concerns. It’s not charity because the end goal is still a profitable return on investment, but it does involve increased scrutiny of the stocks an ethical investor is considering.
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Method 1: ESG Criteria
ESG stands for environmental, social and governance, and these are three criteria some ethical investors rely on when evaluating a company’s ethics before investing. Adopting ESG criteria means supporting companies with environmentally responsible, socially equitable and ethically governed practices. Here’s a closer look at what that entails.
Environmental criteria: The amount of carbon emissions a company causes, how it manages any waste created in manufacturing or shipping, its use of water, and its energy-efficiency practices are all environmental concerns.
Social criteria: This includes everything from how a company manages relationships with employees and customers to how it chooses suppliers and supports various communities. It can mean diversity and inclusion policies, fair labor practices, human rights programs, and community engagement.
Governance criteria: Governance refers to how a company manages its internal affairs, including corporate leadership, executive salaries, audits, oversight, internal controls and the rights of shareholders. For this criteria, you’re looking for a company that’s run in an ethical and transparent manner.
How To Use ESG Criteria
For those interested in…
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