The minefield of ethical investing

The minefield of ethical investing

When I’m choosing how to invest funds in my Stocks and Shares ISA, I deliberate for a long time.

I only choose mutual funds (collections of shares from a number of companies), and predominantly those that are managed passively and therefore have low fees, so it’s hard to go too far wrong.

Although no one can accurately say what the stock market will do, I want to make the best decision I can.

How hard is ethical investing?

I’ve been looking for ethical investment opportunities and finding it harder than I first imagined.

One of the first so-called ethical funds I looked at listed HSBC as one of the top holdings. The first thing that came to mind when I thought of HSBC and ethics was their money laundering scandal. However, when I looked into why they’re included in an ethical fund, I learned that HSBC is carbon neutral and has been since 2005.

I then discovered that there is a FTSE ESG (Environmental Social Governance) index, which seemed like a great way to find the most ethical companies. I was really surprised to see Johnson & Johnson listed, as the first thought that popped into my head was about their talc cancer lawsuits. But then CSR hub’s analysis indicates they achieve well in the area of ESG.

Perhaps the best article I read was ‘Good as gold? Ethical investing is not the no-brainer it seems‘ on The Spectator’s website. This article is definitely worth a read if you’re interested in ethics and investing but one of the best examples of why it just isn’t clear cut is this one:

Mining companies often wreak terrible damage on local environments, so companies like Rio Tinto or BHP are considered beyond the pale by some funds. But this isn’t so simple either. The magnets used in some wind turbines require rare-earth metals such as neodymium and lanthanum, which are often mined in appalling conditions in China, leaving behind toxic waste.

So even investing in something ‘obviously ethical’ isn’t as ethical as it first seems.

So where does that leave us?

I still think it is worth investing in a way that tries to do good, even where there is room for improvement. It certainly seems better to try to do that rather than continue to invest in just any mutual fund, simply because no company is perfect.

Now I have (almost) accepted that is the case, I’m ready to start deliberating over which new funds to add, whether to simply invest more in the sustainable fund I already have in my portfolio, and whether I should divest myself of less ethical investments.

What are your thoughts on ethical investing?

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