How do I invest Ethically?

Investing ethically is becoming an increasingly popular way of putting money to work. Many investors are seeking out ethical investments that will not only provide them with returns, but also align with their personal values. But what exactly does it mean to invest ethically, and can you actually do it?

Ethical investing is an approach to investing in which investors seek to avoid companies and industries that are associated with negative social and/or environmental impacts or that are engaged in unethical practices. This includes such areas as animal testing, human rights violations, and polluting the environment. The goal of ethical investing is to use investment decisions to promote businesses and activities that are beneficial to society, the environment, and the global economy.

The most common form of ethical investing is socially responsible investments (SRI). SRIs are investments that are actively managed to avoid companies or sectors that don’t meet certain environmental, social, or other standards. SRIs can focus on a wide range of issues, from avoiding tobacco investments to only investing in companies with a commitment to diversity and gender equality.

The first step in investing ethically is to understand your personal values. Do you have strong convictions about certain issues, such as environmental protection or human rights? Once you’ve identified your values, you can use them to guide your investment choices.

One way to invest ethically is to purchase stocks, bonds, and mutual funds that specialize in socially responsible investments. These investments will typically avoid investments in industries like tobacco, alcohol, and weapons. There are a number of mutual fund companies that specialize in socially responsible investments, and many brokerage firms now offer these funds for purchase.

Another way to invest ethically is to do some research on potential investments. You can look for companies that are doing their part to reduce their environmental impact and are actively promoting social initiatives. You can also look for companies that have strong corporate governance policies in place and are committed to diversity in the workplace.

Finally, you can also look for products or services that align with your values. Is there a company that has developed a sustainable product or service that you believe in? Are there any investments that will help fund the development of new renewable energy sources or green technologies?

The truth is that ethical investing can be more than just an act of conscience; it can actually be a sound financial decision. Many ethical investments have outperformed the market in recent years, and they can provide diversification benefits as well. Additionally, many companies have realized that “going green” can be good for their bottom line, which can result in increased profits for ethical investors.

Ultimately, investing ethically is an individual decision that should reflect your personal values. The key is to do your research and to understand what a potential investment entails. By taking the time to understand the social and environmental impacts of an investment, you can ensure that your money is being put to use in a way that aligns with your values. Ultimately, this is the best way to ensure that your money is being invested in a way that benefits both yourself and the world around you.

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by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds