Investment Ethics is an investment strategy where the investor’s ethical values (moral, religious, social) are the primary objective, along with good returns. Many investors are starting to insist that firms they invest in are socially responsible. This implies treating their personnel with respect, creating healthy investments, and services and keeping away from unethical business practices. Investment Ethics is for investors who want to invest their money for noble causes.
Sorts of Investment Ethics
1. Socially Responsible Investing Ethics
Socially Responsible Investing Ethics steer clear of investing in controversial areas such as gambling, weapons, tobacco, alcohol, and oil. Here, the investor’s moral value is given vital importance in investment selection.
2. Environmental, Social and Governance Ethics
Unlike, Socially Responsible Investing Ethic; Environmental, Social, and Governance Ethic consider in their decision-making how environment, social, and governance risks and opportunities can cause material effects on a firm’s performance. They can invest in sustainability while maintaining the same level of returns as they would with a standard approach.
3. Impact Ethics
Effect Ethics place equal importance on ethics performance. Hence, they firmly look at creating ethical changes supporting firms that provide certain investments and services. Effect Ethics are suitable for investors who are socially responsible but also want good returns.
4. Faith-based Ethics
Faith-based Ethics only invest in stocks that follow religious values and ideals, and firmly exclude investments unfit for the category.
Benefits of Investment Ethics
- The investor feels happy when an ethical holding firm performs well. They benefit emotionally and financially when the firm shares their values.
- As more people invest in ethical funds, the investments can grow substantially in the future.
- Since investment ethics is gaining importance, it will encourage other businesses to improve their ethical practices to attract funding.
Inadequacies of Investment Ethics
- As investment ethics is a proactive strategy, it involves a lot of research to ensure that it aligns with the investor’s values and beliefs.
- Investment ethics provide suboptimal returns; hence, the investor gives up financial gains for an ethical approach
- The responsibilities for investment ethics can be higher due to the research involved in identifying the right investment.
Investment Ethics assist firms to gain access to capital to grow and fund their corporate social responsibility programmes. It also gives investors the ability to influence an organisation’s operations and practices towards their personal values and ethics.
An investor chooses to invest ethically when they want to make a change in society. Their primary goal from the investment is to satisfy their moral, social, and religious values, while returns are secondary.
While Investment Ethics is good, it is an expensive strategy, as thorough research needs to be done to find investments that satisfy the investor’s primary objective. Also, unethical firms will continue to succeed as other investors seeking high returns will support them.