Ethical investing is a common practice nowadays, with many investors seeking investments that align with their values and beliefs. As a result, there has been a rise in ethical investment funds like those managed by the Responsible Investment Association.
These funds aim to invest in companies that meet certain criteria regarding environmental, social, and governance issues. Ethical investing is a way of investing where you look at companies’ practices, policies, and social responsibility before deciding to invest in them.
Ethical investing is not only about avoiding unethical businesses. It entails seeking sustainable investment opportunities and sustainable portfolio management. Here’s what you need to know before investing in ethical companies.
How to Evaluate a Company’s Ethics
1. Check their ESG score
Most ethical companies are keen on their ESG score. For sustainable portfolio management, it’s important to analyze this score before investing in a company. Some agencies like Refinitiv issue such scores to reflect how a company observes ethics in its environmental, social, and governance matters.
In addition, you should rank the company using its humankind values if you want a sustainable portfolio. For instance, a company may be offering its customers, investors, and employees much value but destroying society more than its value. This could be by contaminating their drinking water and covering the millions required for medical bills. Such companies have negative humankind values and should not be a part of your investment if you want to achieve sustainable portfolio management.
2. Check their workforce
A company’s workforce is your best shot at understanding its ethics. So, listen to the claims of employees regarding their work environment. You can also check online reviews for comments from former employees to identify underlying ethical issues. Some independent sites like Glassdoor report on the culture ratings of different companies. Also, check out such sites to achieve your sustainable portfolio management goal.
In addition, consider instances of racial discrimination, wage inequality, or sexual harassment within the company. Discrimination can also be because of gender, age, disability, religion, pregnancy, etc. Also, the employees’ health and safety at the workplace can negatively affect a company. If a company makes money at the expense of its employees’ health, that company is unethical. Disregarding human rights and labor laws can make a company unethical, regardless of how profitable investing in them can be. So, consider the companies doing more good than harm to their workers.
3. Monitor the company to ensure they maintain the set standards
Companies listed in a securities exchange must be publicly listed. As a result, they must submit annual reports audited by third-party auditors. You can also reach out to the US Securities and Exchange Commission about a company listed therein. These transparency records show potential investors where the company spends its money. Therefore, you should not consider investing in a company that doesn’t meet these standards.
4. Monitor updates on the company for ethical breaches
Before investing in a company, it is important to research it thoroughly and take time to monitor its activities. You should stay updated on any reports about ethical breaches in the company. You can rely on reputable news reports and diverse sources to get more information before investing.
For instance, unethical accounting is an ethical breach. This is where a company cooks its accounting books to report its financial status inaccurately. For sustainable portfolio management, ensure the company doesn’t have reports of unethical practices.
5. Check its social media ethics
With the rapid increase in social media usage, companies may find it challenging to monitor their staff’s social media. For instance, can a company fire or punish an employee for a controversial post, or is social media free speech? Although it can be tough to decide on such issues, a company should draw the line where an employee posts something that shows disloyalty to their employer. For example, it could be something that reduces the company’s business. So, it is advisable to check on a company’s social media ethics because anything that can reduce a company’s business can cause your portfolio not to be sustainable.
Ethical investments can be hard to find. But if you use these tips to evaluate a company’s ethics, you are one step closer to selecting ethical investments, and sustainable portfolio management becomes easy.