Getting Started

Turning Values into Ethical Investment Strategies

When done right, ethical investment is a powerful way to link your money to your values. However, it’s easy for investors to end up with unfocused goals and underperforming investments. Social investing is still investing, with all the numbers and analysis that entails. Once you’ve decided to invest alongside your values, what’s the practicality of doing so? How do you identify values that will translate into a competitive portfolio?

The process requires some time and attention. You need to identify the subjects that matter most to you, match them to recognized ethical investing strategies, and reassess your strategy over time.

Why Ethical Investment Strategies?

By choosing ethical investment strategies, you fund progress in areas that matter to you. Additionally, businesses could be swayed to change their approach on things like fossil fuel usage if they see that it matter to investors.

As these investment strategies reflect the investor, focus areas run the gamut of social, religious, environmental, and corporate governance concerns. Strategies can also map to an investor’s area of expertise. A real estate investor may explore affordable housing, whereas a venture capitalist could fund companies that develop alternative fuels.

While so many choices lead to a wealth of opportunity for impact investors, it can lead to a scatterbrained approach if not carefully planned. This is why it’s essential to define what matters most at the beginning.

Define Your Values

Many investors are interested in ethical investment because they want to do well while doing good. At the outset, though, it can be challenging to zero in on an area of impact.

A written statement can determine what matters most to you in a way that can guide your investment decisions. The more specific you can be, the better. “I don’t want my money going to bad things,” isn’t the most effective statement because it doesn’t define “bad.” On the other hand, “I want to invest in companies that have good labor policies,” is a statement you can put into practice. If you have a connection to or a history of success investing in a particular industry, note that as well.

If you can’t find investment opportunities that match your values, consider this a red flag. While it’s possible that you’re onto something new, more likely you’re dealing with ideas that aren’t fully realized enough to translate into a financial portfolio. Even if you do it yourself, you may have trouble executing your strategy if there aren’t enough good investments that fit your criteria.

Keep in mind that specifying what you actively want to invest in will give you more flexibility than a list of what you don’t want. Many advisors will respond to requests for proposal (RFPs), which is one way to get clarity on ethical strategies for a large portfolio.

Make It Happen

Social investing has been around for a while, and some wealth management companies specialize in turning good intentions into workable approaches that meet client preferences for risk, return, and ethics. Advisors at these companies know how to structure investment portfolios to meet standard ethical investing guidelines like religious principles, environmental issues, and corporate governance concerns. They can help turn dreams of a competitive, values-based financial portfolio into a reality.

Strategies change. Investment priorities do, too. Issues and areas of concern can shift with changes in regulations or cultural mores. At one time, for example, some investors sought out companies that provided benefits to domestic partners. When same-sex marriage became federal law, investors could stop using that criterion to screen stocks. Continually revisiting your ethical investment strategies will ensure that they still match what’s happening in the world and the issues that you feel are pressing. Reassess along financial lines, as well. Are you still meeting risk and return targets?

Your goals may change, but the process remains the same: Articulate what you want. Find ways to execute on that basis. Assess how it worked, and then make changes as necessary. Over time, you’ll become a better social investor—and the world just might become a better place.

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