Ethical investment is not a term that everybody is familiar with. Even if you have heard of it, you may not know exactly what it is. As a property investor, your priorities will relate to the buildings and physical assets you own. But if your property business is doing well, you should be generating spare income. That money could be working for you to generate more capital for future growth.
Obviously we’re talking about investment here, but what’s the difference between a normal investment and an ethical one?
The first ethical investment funds were created in the 1980s. The idea was to eliminate companies that were trading in markets deemed controversial at the time. If the idea sounds vague, that’s because it was. In fact, in the intervening 30 years much has changed, but the ambiguity of what ethical means has remained.
Many different markets have been considered off limits; from tobacco and alcohol, to arms and a whole lot in between. Recently however, simply avoiding certain markets hasn’t been enough.
The original idea of excluding certain companies based on the markets they traded in is called negative screening. Whilst it was the original requisite for any fund wanting to call itself ethical, it has been supplemented with positive screening. This is an additional stage that actively looks for companies who are contributing to the environment, acting in a socially responsible way towards their employees, or a whole host of other attributes.
Like the original negative screening, this definition is open to a great deal of interpretation, not only from the companies compiling the portfolios and funds, but also from you – the investor.
In recent years, the market for ethical investing has exploded. Many people are investing ethically for personal reasons. There is a growing awareness in our society that what we all do, both at home and at work, has an impact on the world around us.
It started with the option to donate to an environmental charity when purchasing travel tickets or holidays, but now everybody is getting in on the act and social responsibility is a huge thing for a lot of companies.
But they’re not just doing it because it’s the right thing to do. There is also a critical market advantage to be had. Consumers prefer companies that are behaving ethically. They are more likely to trust ethical companies with repeat business and therefore, the shares of publicly traded companies behaving in such a way, are performing better than their non-ethical peers.
Everybody has their own ideas on what is ethical or socially responsible in any given field or market. It’s up to you to decide on the criteria that mean the most. There are several reasons to be investing ethically, but whatever your motives, how do you know that the funds you’re looking at are ethical? The best way is to use the services of an investment manager. That way you can be sure about where your money is going and get back to growing your property empire.