An exchange trust fund aiming to invest ethically is called an ethical ETF. If the EFT focuses on investing in ethical stocks, it aims at investing more in companies that try to be socially responsible.
The word ethical means different things in people. Individuals have different ideologies about what they believe, to be honest, and what is not. This notion is determined by deep things like religion or simple things like a Facebook post you read. A common challenge that most investors face is ensuring the funds’ goals are aligned with their ethical perspective.
As you diversify your investment, select an EFT that focuses on investing in companies that abide by the Golden Rule; treat people the way you would like them to treat you. Here is how to diversify your investment portfolio with ethical funds.
Ways To Diversify Your Investment Portfolio With Ethical Funds
Benefit Corporation ETFs And Ethical Goals
EFTs have recently gained the ability to be planned as Benefit Corporations. B Corp funds have a unique goal of making money for investors and creating a public benefit that maximizes the value for society, employees, and customers.
The mission of these funds is better aligned with the task of ethical capitalists. If you want your investment to have a mission beyond making you more money, you must consider the public benefit mission of a B Corp ethical fund to see how they align with your ethical goals.
Are Sustainable Funds Ethical?
The idea of sustainability is closely related to ethics. Sustainability in a business context refers to a company’s ability to operate for a long time without being haunted by its actions.
Environmental sustainability refers to the ecological component of sustainability touching on companies that destroy their environment so it can’t sustain them anymore. You can say that an ethical company can be sustainable. A company that acts ethically strives to reduce its adverse effects on people and the environment. This company is less likely to have people around to stop its operations.
While the two concepts are not the same, a sustainable, ethical fund will likely invest in companies that behave morally. A sustainable, ethical fund focusing on environmental sustainability can choose to invest in small companies. It can also include environmentally sustainable but unethical companies from a social perspective.
Are ESG Funds Ethical?
ESG touches on environmental, social, and governance issues related to management decisions and business investment. Recently, most ESG funds have focused on how the financial material of ESG risks affects the profits of the companies they decide to invest in.
These funds are not entirely ethical because they aim at maximizing profits. This means a company can hurt people and get away with it if it does not affect the gains and will not be a significant negative factor. Ethical funds would penalize such actions regardless of financially material consequences or not.
If you are looking for an ethical fund, pay attention to any company that engraves itself as ESG to ensure they are not only interested in making more profits for investors but also values its impact on humanity.
Single Theme ETFs
If you are searching for an ethical fund because you want to support a particular cause, consider certain EFTs with a very narrow focus. For example, individuals who care about female leadership will consider EFTs that offer exposure to companies with female CEOs.
However, this strategy can have a significant drawback because some people have ethical interests going beyond a matter that may be important at a particular time. For example, some ethical investors may intend to invest depending on a single moral issue like war.
Such an investor despises war because multiple people die from a military dispute, which is ethically offensive to them. Now that they hate war, they would not want EFTs investing in companies facilitating war. Some investors may be aware of the issues related to investing in single-theme EFTs, while others may unintentionally miss out on the bigger picture.
There are different ways to diversify your investment portfolio with ethical funds. You can integrate Benefit Corporation ETFs with your ethical goals to maximize the value for society, employees, and customers. Please pay attention to companies that advertise themselves as ESG since some don’t value their impact on humanity.