by Initially, a stardized stock bond portfolio was all an investor needed to make a decision. Today, however, investors are considering external factors like environmental impact social causes when making financial decisions. The social responsibility approach is guiding everything companies consider when investing what strategies to use.
Socially responsible investing has now intersected with ETFs (exchange-traded funds) – an appealing combination. A socially responsible ETF invests in companies considering both social good financial returns. Social responsibility broadly covers principles like company ethics, human rights, environmental friendliness.
Here’s what to consider when selecting ethical investment funds.
Investment Process And Policy
You can tell the extent to which fund managers in an ETF embrace SRI by checking their reports. Check whether social, governance, environmental factors are considered how they have been embedded in their investment process.
If these factors feel more like an add-on to tick a box, hold off. When selecting ethical investment funds, remember that SRI principles should be a significant element of their investment approach.
Policies And Engagement
Many ETFs have documented their engagements with investee companies. Check their engagement to get insight into their views cultures. Fund managers should also be in positions where they vote on the key issues during annual meetings hosted by companies invested in.
One good indication when selecting ethical investment funds is fund managers that are willing prepared to vote against the management. The engagement should show a genuine goal to engender positive change.
Signatories And Transparency
Anyone looking to invest their funds in a socially responsible manner should have access to the fund’s entire portfolio. You do not want to invest in an ETF that has only shared its top ten holdings. This way, you can assess all the companies listed.
While being a signatory is not matory, ETFs that are signatories to the United Nations Principles for Responsible Investment are generally a good sign. When selecting ethical investment funds, Check whether they are signatories to any codes that serve as benchmarks for sustainable investment.
Research And Data
Check how the fund researches. Do they rely on third-party ESG data research? Primarily relying on in-house research is better. While ratings third-party data may be resourceful, there’s a significant scale of inconsistency across various agencies.
External data should be used as a general guideline but not in isolation.
Green Washing When Selecting Ethical Investment Funds
There’s a significant risk posed by overhyping the more positive elements of socially responsible investment without accounting for addressing the harmful elements. Greenwashing is unfortunately a reality where companies present a socially responsible front that is only a briefcase.
Check whether companies in the portfolio benefit the societies served. Do they offer jobs? Are their staff treated with respect dignity? Are all workers of age? Solely focusing on the positives could mislead you your investment. Look at the funds in a whole picture context.
Invest In Society
Ethical considerations in investment are an applaudable trend that is reshaping investments. You can now grow your wealth in investments that also make the world a better place. Ethical trading in an exchange-traded fund is a great way to exp your investment with an assurance that the pool of companies you’re investing in meets your ethical stards.
