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What does investing ethically involve?

What does investing ethically involve? alt

Socially responsible decision making and living is becoming more topical than ever.

Thanks to social media, TV and internet we have access to a constant stream of news, and not often good news, about the varying state of affairs and how our actions are impacting the planet. The news is scattered with reports of climate change, exploited workers, with many companies around the world being put under the spotlight for the role they play in these issues.

Carbon emissions fell dramatically over the last year due to global lockdowns that saw reductions in activities such as transport. As the world returns to normal emissions are increasing but there is now a heightened awareness around environmental issues with 70% of research respondents saying that since Covid-19 emerged, they are more aware of the threat of human activity on the environment and climate than they were before. For those under 25, the environment is the second most important issue for them after health.

Not surprising then, more individuals than ever are realigning their values with the environmental and wider ESG issues prevalent, resulting in a varying spectrum of behaviour and lifestyle changes, extending to “responsible investing”.

‘Responsible investing’ is defined as a strategy and practice that incorporates ESG factors into investment decisions. You’re going to hear the term ‘ESG’ a lot, so let’s break that down.

E is for Environment

This means not investing in businesses that have environmental risks created by business activities and operations. With climate change on many of our agendas, this one is a big motivator for changes in behaviour. Fund managers would be looking at impacts on air, land, water, ecosystems; with waste and pollution being considered.

S is for Social

Social risks refer to the impact that companies can have on society and the treatment of people within the company. Looking for companies that protect human rights through appropriate working conditions and pay is a prime example.

Finally, G is for (Corporate) Governance

Governance is looking at the way companies are run. It addresses areas such as diversity, accountability of the board, protecting shareholders and their rights, and how companies report and disclose information. There are a huge number of factors to be considered within each category, but these are the ruling factors that are checked within investments to see if they are ethically aligned.

Get involved

Ethical options at Cushon we have our Ethical CushonMix portfolios, which give you easy access to ethical only funds via your risk appetite. This option allows you to invest money and align with your values, selecting a risk and return level you are comfortable with. If you are wanting to self-select funds and build your own custom portfolio, we have an ‘Ethical only’ filter on our comparison tables.

Take a deeper dive into these ethical funds by reading up on the factsheet supplied, and you can see which areas of ESG that funds targeting and how they’re looking to generate change.

Learn more about Cushon's ESG voting feature.