Ethical Investing: Can You Save for Retirement Without Compromising Your Values?

Originally posted on July 29, 2022.

One of the most important aspects of work and earning income is setting yourself up for a happy and comfortable retirement. The age of the internet has been massively helpful for those seeking advice about personal finance and investing. However, as information becomes more available to the public every day about corporate greed, labor exploitation, and the negative impact major companies have on the environment, it can be difficult to make choices that don’t conflict with your values. Ethical investing is the practice of choosing to invest in a way that aligns with your morality. Learning about socially conscious investing can help you grow your money while reducing your negative impact on the planet. 

What is Ethical Investing?

To understand ethical investing, it’s important to know what types of funds are available. The most prominent acronym associated with socially conscious investing is ESG, which stands for Environmental, Social, and Governance. ESG funds prioritize these issues when selecting where your money will be invested. 

• Environmental concerns these types of funds seek to avoid may include pollution, oil, greenhouse gasses, and global warming. 

• The social aspect of this type of investing includes issues such as racism, LGBTQIA+ and women’s rights, and child labor. If employees in the supply chain of a company face having these rights threatened, it would exclude them from an ESG fund. 

• Governance doesn’t refer to anything political, but rather the leadership of a company itself. If the leaders of a company have a history of corruption, criminal charges, or amoral behavior, it would also exclude them from these types of funds. 

You may be surprised to learn that there are over 800 types of ESG funds available to American investors, with over $3 trillion invested in them as of 2020. Additionally, the demand is growing. Socially conscious investing is wildly popular among millennials, with 95% of millennial investors reporting that they have an interest in ethical investing. 

ESG investments can include mutual funds, ETFs, and bonds. These portfolios are pre-selected to invest in organizations that meet the above criteria. You also may want to consider using the expertise of a financial advisor to maximize your returns with an actively managed portfolio. Aside from ESGs, some other types of ethical funds include: 

• Impact Investing: This type of investing seeks to create social or environmental change, while also prioritizing robust returns for investors. Impact investing requires the organization (whether it’s for-profit, non-profit, or a hybrid of the two) to have a plan in place to provide measurable, positive change to the world. 

• SRI funds: These are funds that avoid vice-related or controversial areas of investing, like tobacco, alcohol, oil, and gambling. SRI stands for Socially Responsible Investing, and choosing a fund is based on the investor’s morality. For example, one may feel comfortable investing in tobacco, but uncomfortable investing in the oil industry.

• Faith-Based Investing: These types of investments follow a strict code of ethics based on their religious affiliations. 

Understanding the language of ethical investing will help you to select the best option for you to strike a balance between your wallet and morality.

How to Get Started

Seeking the guidance of a financial advisor is a great way to map out an ethical investing plan. However, you first must decide what issues are most important to you. It’s difficult to invest without compromising your values in some areas. Perhaps you see the global climate crisis as the primary threat to humanity and want to prioritize investing in organizations with a positive impact on the climate. Or, you might be a passionate advocate for the rights of your community, and focus on social issues and outcomes while investing. Once you have this information ready, you can meet with your advisor to discuss options.

Another great resource to take advantage of is, of course, the internet. If you’d rather handle investing by yourself, there are online platforms geared toward these issues. Some of these companies provide virtual financial advisory services, so you can have expert guidance when selecting where to place your money. Whether you decide to invest in a traditional or modern method, there are many avenues you can choose to get started.

Downsides of Ethical Investing

While there are many benefits to ethical investing, the practice has drawn some criticism. A huge drawback is that it’s easy to become obsessed with achieving moral perfection as you invest. Sadly, this just isn’t possible in today’s world. However, it’s necessary to remind yourself that your needs are important, and you deserve the opportunity to grow your hard-earned money. Another tip that may help you cope with stress surrounding the impact of your investing is donating money to causes that are important to you, or even volunteering within your own community for independent living near family. This will remind you that you are capable of enacting positive change, and that the world is a better place because you’re in it. 

Another aspect of ethical investing that’s heavily critiqued is companies who claim to follow a moral code may be secretly far less ethical than they seem at first. This shows the importance of doing your research and electing to invest in organizations that you deem trustworthy. However, making an educated decision with the information available to you is the best you can do when faced with any kind of choice, including where to invest your money. Taking the time to understand where your money is going will help you make the best decision possible and help  ease your conscience. 

Expanding Principles into Your Daily Life

Whether or not you’re sold on ethical investing, applying the principles of social responsibility can help you align how you use your money with your personal convictions. When you spend your money, you’re investing in the success of a company. If that company has unethical practices, you’re supporting their growth. Again, it’s important to understand that there’s no such thing as ethical consumption, and meeting your own needs is crucial. However, making ethical choices about spending can help ease your mind while making the world a better place. Some purchase categories to consider include:

• Clothing: Ethical fashion is a growing industry, and for good reason. Ethical fashion refers to clothing that’s produced as sustainably as possible, and ensures garment producers are paid a living wage. The fashion industry is not only one of the top polluting industries in the world, but exploits child labor and abhorrently low wage rates in coutries with poor labor laws. Choosing brands that make ethical, sustainable clothing not only reduces pollution, but gives you the opportunity to outfit yourself with clothing you take pride in.

• Homes and Appliances: The process of purchasing a home can be confusing, and taking steps such as saving enough money for a down payment, learning how to get pre approved for a mortgage, and selecting the right home size and location to meet your needs is a major life choice and a weighty responsibility. Choosing a green home can be a great way to reduce the footprint of this major investment. Green homes are houses in which the construction and materials are as ethically sourced as possible, and have energy-efficient elements to reduce your consumption of water and energy. You may also consider upgrading your appliances, such as your fridge, washing machine, and air conditioning system to more energy-efficient options. This can save you money in the long run and reduces your consumption of resources.

• Cars: Just like purchasing a home, buying a car can be a stressful and confusing decision. Navigating the loan process and deciding on a car that is right for you can take weeks or even months. However, deciding to choose an eco-friendly car can help you not only focus your options, but also help the environment. There are a host of options, such as electric vehicles, hybrids, or even traditional cars that have excellent gas mileage and great emissions ratings. Reducing your consumption of gas will make your wallet happy, and help out Mother Earth as well. 

One final note is that you should be aware of the practice of greenwashing, where companies mislead the public about how ethical or sustainable their processes are. Doing your research, as always, is key to avoiding falling into the trap of believing that your money is doing more good than it actually is. 

Sadly, it’s impossible to invest or consume anything without some degree of compromise. But the good news is there are a host of options and opportunities to help reduce this harm and enact the change that you personally find important. Building wealth for your retirement is crucial, and every choice you make with your money impacts that goal also, preparing for your golden years while exploring independent living options ensures autonomy and support, aligning with long-term financial plans and aspirations. Choosing to grow and spend your money in a responsible way can help you to negotiate the ethics of the financial and corporate world, while still working towards your most important goals. 

If you are interested in learning more about the world of investing and growing your wealth, join our Money Makers Program. You can sign up here if you are ready to take the first step on the journey towards financial stability, peace, and wealth.