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When most people think about investing, they think about profit and returns and how much money they can make. But maybe you – like a lot of people – don’t see it that simply.
Let’s be honest: there are a lot of publicly traded companies out there damaging our world – they’re releasing harmful gas or chemicals into the atmosphere, pushing consumption that destroys our natural environment, or selling products that do more harm than good.
The good news is… it’s possible to feel good about your investments by being intentional and thoughtful about where you invest your money - and it’s easier than you think.
Today, we’re diving into ethical investing. I’m going to explain what it is and how you can do it so that you can actually feel good about how your money is being used and what you’re supporting with your dollar.
One of the things we emphasize at Dow Janes is our ability to vote with our dollars. We get to do that when we purchase things from companies that are aligned with our values — like black- or woman-owned shops — and you also get to do this when you invest and choose to bet on companies you believe are doing good in the world.
By the end of this article, you’ll know how to create your own ethical investment portfolio that aligns with your deepest values and uses the power of capital to build a better world.
What is ethical investing?
Ethical investing is when you align your financial goals with your values. For a lot of ethical investors, that means investing your money in ways that not only make money but also make the world a better place.
It could be about putting your money into companies or projects that have a positive impact on society or the environment, or whatever it is that YOU care about.
Ethical investing is more than just a different strategy. It represents a paradigm shift in the finance industry. It challenges traditional notions of investment by placing equal importance on your values as it does on financial performance.
Ethical investing offers a unique opportunity for investors to speak up about their values - by only investing in companies that are driving change or addressing pressing global issues, for example.
Does that sound like something you’re interested in? If so, keep reading because I’m about to give you 6 steps to start investing ethically.
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How to Start Intentional Investing
To create an ethical investment portfolio, you need to align your investment strategy with your values. Here are 6 steps to help you get started:
1. Clarify Your Values
Begin by identifying the causes or issues that you are most passionate about supporting – or NOT supporting – through your investments.
For example, maybe you don’t want to invest in companies that manufacture tobacco or firearms? Maybe you want to invest in companies that are fighting climate change or embracing diversity in their leadership?
Think about what you care about most and write down your criteria.
2. Create Your Investment Strategy
There are 3 common ways to do ethical investing, so the next step is deciding what approach you want to take.
Level 1: Exclude specific companies or industries that are doing harm; for example, you don’t invest in companies that produce tobacco products or weapons because these products are foundational to their business.
Level 2: Only select companies that adhere to certain best practices that align with your values. This is a broad approach that attempts to invest in “mostly good companies.”
Level 3: Invest specifically in companies that are creating solutions that result in positive change related to your values, like clean energy companies for example.
Based on your values and your intentions for investing, pick the approach you want to take that makes most sense for you.
3. Do Your Research
Research investment opportunities that match your criteria.
One helpful term to know about as you’re doing your research is ESG. ESG stands for Environmental, Social, and Governance and it is a set of criteria used to assess the sustainability and societal impact of companies.
If your personal values happen to be ones about the environment, social causes, or how companies treat their employees, then the ESG designation can be a good one to look out for as you’re looking for funds to invest in.
As you’re researching, you may want to look for sustainable funds, ESG funds, impact-based mutual funds, or CDFIs (or community development financial institutions).
If you haven’t heard of a CDFIs before, they provide affordable financial services to underserved communities with the goal of promoting economic development and addressing financial disparities, so for a lot of people they are a highly values-aligned investment.
All of these that I just mentioned are different types of investments that may be more aligned with your values than a standard index fund.
As you’re researching your potential investments, you’ll want to assess the track record, financial performance, and impact metrics of potential investments.
If that sounds intimidating, here are a few tools and tricks for finding investments that align with your values:
- To evaluate publicly traded companies and funds: go to the Invest Your Values website. They have scorecards for how the biggest companies in the U.S. rank in terms of social and environmental responsibility, so you can go there and see – for example – how Netflix ranks for gender equality or Whole Foods ranks for fossil fuels. You can also use it to evaluate funds and how they do on the whole in terms of fossil fuels, prison involvement, gun manufacturing, etc.
- To find community development financial institutions (CDFIs): most people like to invest in CDFIs that are local to your area, so search for CDFIs in your geography or ask your local bank if they have any resources.
- To find ESG ETFs: you can look for the “ESG” designation in the name of the fund - iShares has a lot of ESG funds, for instance, and then you can also review the sustainability ratings on Morningstar.
If this all sounds too daunting, you can always…
4. Get Expert Help
If you know you want to build an intentional portfolio but want support in doing so, you’re in luck!
We have a program — Intentional Investing — to teach you how to become your own financial advisor and build an intentional portfolio based on YOUR values. We teach you step-by-step how to find, research, and invest in opportunities that you’ll love, so you can feel good about how your money is being used, while it’s growing and building your wealth.
5. Diversify Your Investments
Like any investment portfolio, diversification is key to managing risk. Make sure you allocate your money across different sectors, asset classes, geographies, and impact themes to spread out your risk and maximize the potential for negative impact.
6. Continually Educate Yourself
This is a relatively new space in the investing world, so things are changing quickly and new sustainable ETFs are popping up each year. It’s a really exciting time for intentional investors as we have more opportunities than ever before. That being said, when things change quickly you want to stay on top of it - so stay informed about developments and trends in the field.
Remember that creating a values-aligned investment portfolio is a dynamic and iterative process. Be patient and remember that this is an ongoing process.
It may be challenging, but by investing in alignment with your values, you are using your money to create positive change and build a more sustainable and equitable world.
Want to Take Your Wealth-Building to the Next Step?
Through ethical investing, you aren’t “just” building wealth (although, you are and that’s amazing); you’re also addressing the world’s biggest problems.
In a world that’s becoming more and more interconnected, ethical investing represents hope. And money becomes not only about individual wealth but global good.
I hope that this gave you the knowledge and encouragement you needed to start using your money to create a more sustainable, inclusive, and prosperous future for all. There might be times where you feel powerless, but you’re not. You are an unstoppable force for good. I believe in you and the change you’re capable of.
Thank you so much for reading and for caring about this. Now, go be the incredible, one-of-a-kind light you were meant to be in this world!
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