Lockdown 2 saw investors turn more to ethical investing

Image source: Getty Images



Ethical investing has become a popular choice for investors lately. During the second confinement, ethical funds such as the ‘Clean and Green’ fund of Plum has seen a significant increase in the number of new investors. We take a look at what this surge means for the market.

What is ethical investing?

There aren’t really any hard and fast rules about what makes an ethical investment. Indeed, everyone has their own ideas and beliefs about what is ethical or what is best for the planet.

What has increased recently are ethical funds. They can take many different forms, but the main funds are those that:

  • Exclude certain businesses or industries deemed harmful (e.g., weapons manufacturing or non-renewable energy)
  • Focus on companies considered to have a positive effect on the planet (e.g. socially or environmentally responsible)

The good thing is that there are a growing number of ways for people to choose their investments. If you have yours investment strategy, you can choose to invest only in companies with which you are ethically comfortable.

Why is it becoming more popular?

Supporting the environment and being sustainable is no longer a fringe movement – it’s become mainstream.

The amount that new investors were allocating to Plum’s “Clean and Green” fund increased from 5.5% in March/April 2020 to 8.9% in November/December.

This is just one example, but it seems that the coronavirus pandemic encourages investors to think about how their decisions affect the world around them.

Interestingly, a large part of the increase comes from new players. This may be due to millennials and younger investors who aren’t just driven by returns. Choosing longer-term, more sustainable investments is a no-brainer for some.

How can I get involved in ethical investing?

There are simple ways to align your investments with your morality.

If you like the process of picking your own stocks, you can choose to buy stocks in more sustainable industries.

For investors who prefer to use funds, a number of stock trading accounts now provide access to ESG (environmental, social and governance) and SRI (socially responsible investment).

The performance of many ethical funds has actually been quite similar to that of their less ethical counterparts. I think if most of us have the opportunity to have a more positive impact with our investments, we are happy to do so.

Will it continue to be popular?

There are signs that post-pandemic investment will continue to develop in a more ethical direction. America is still the greatest economic power and Biden’s inauguration this month has already given a boost to climate change politics. A number of steps like joining the Paris Agreement are already underway.

However, things can change quite quickly. There is still a lot of money tied up in businesses and industries that might not be considered ethical. Many people have been investing for years and are probably reluctant to change their strategy.

Also, many people may have the bulk of their investments tied to things like pensions, over which they have limited control.

Ethical investing is a trend that is expected to increase over the next few years. It should be kept in mind, however, that this does not necessarily mean that it will be more profitable than a more traditional style of investing.

Was this article helpful?

YesNo


Some of the offers on The Motley Fool UK site come from our partners – that’s how we make money and keep this site running. But does this have an impact on our grades? No. Our commitment is for you. If a product is not good, our rating will reflect it or we will not list it at all. Also, while we aim to present the best products available, we do not review every product on the market. Learn more here. The statements above are those of The Motley Fool and have not been provided or endorsed by the banking advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. The Motley Fool UK recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard and Tesco.


Comments are closed.