Investing in Businesses That Align With Your Values | INVESTEDMOM
In recent years, individuals have become increasingly more aware of both the negative and positive impacts their actions can have on their environment and society. Investing with values, or in companies that align with your personal values and beliefs, has become more prevalent in reflection of this.
This investment approach goes beyond some of the more traditional investment products. Traditionally speaking, investors are looking to make money with their money. When you choose value-based investing, you focus on aligning your investment values with your investment choices rather than aiming for a significant return.
In this article, we will talk about what it means to invest responsibly, different ways to begin sustainable investing, and the benefits of investing this way.
What is Sustainable Investing?
This investment strategy involves making investment decisions based on your values or beliefs. Traditional methods of investments focus on higher financial returns. In contrast, sustainable and responsible investing work allows investors to support individual companies or specific industries that hold the same values as them. Investors can also avoid companies that conflict with their values or engage in harmful activities.
The concept of sustainable investing is familiar to many. Sustainable investments were first seen in the 1960s and 70s. In fact, past religious groups were known to shun communities or groups that did not practice ethical manners. However, it has gained popularity recently because younger investors are more concerned about their social impact.
A growing number of terms are used in reference to values-based investing. These terms include socially responsible investing, impact investing, and environmental, social, and governance factors investing. The different names reflect different ways you can incorporate their personal values into their investments. Though they relate to specific ideas, each term relates to the broader picture of supporting a business that shares your views.
For some, this approach could mean avoiding specific companies that might take part in harmful or unethical practices. For example, companies that may be considered dangerous or crooked can be tobacco corporations, companies that use fossil fuels, or weapons manufacturers. Others may prioritize investments that support social issues like gender diversity or having strong labor regulations.
How you distribute your funds can become a powerful tool for companies to reconsider their practices. If a company sees that a cause is essential to investors, it can influence them to prioritize those causes.
From socially responsible investments to impact investing, numerous approaches to values-based investments exist. When you understand the different investment opportunities, you can better align your investments with your values and financial goals.
Different Ways to Invest With Values
There are many different forms of value-based investing, each with its own considerations and unique benefits. This section will dive deeper into the three approaches mentioned: socially responsible investing (SRI), impact investing, and environmental, social, and governance (ESG) factors investing.
Socially Responsible Investing (SRI)
This method has the broadest range. Socially Responsible Investing focuses on avoiding harmful businesses that have negative images or environmental impacts and instead funding companies that behave socially responsible. Some areas of consideration for concerned investors can include child labor, protecting animal welfare, limiting toxic emissions and waste, choosing clean technology, racial and gender diversity, or gambling.
Impact Investing
Impact investing aims to create positive change socially or environmentally through investment dollars. This money funds businesses that strive to have a positive effect by solving social and environmental issues. Some of these challenges include providing more sustainable energy options or making education more readily available. This type of investment can be more suitable for investors with a higher risk tolerance and investable surplus of funds.
Environmental, Social, and Governance Factors Investing (ESG)
This investment strategy examines a company's environmental, social, and governance practices related to investors' investment decisions. Some of these consideration factors include whether or not a company minimizes its ecological impact, behaves in a socially responsible manner to both customers and suppliers, has diversity throughout the workforce, and whether or not they treat its employees well. Furthermore, investors concerned with other ESG criteria like renewable energy, human rights, or limiting the use of fossil fuels may feel more drawn to this investment opportunity.
Environmental factors have to do with the environmental impact a company leaves behind. Social factors relate to the ethical behaviors of a corporation and how they treat their employees, customers, and suppliers. Governance relates to the board of directors, wages, and shareholder rights.
Using Mutual Funds and Exchange-Traded Funds (EFTs) for Values-Based Investing
Using mutual and exchange-traded funds is an excellent way to begin the investment process. These investment instruments allow investors to pool their money with like-minded individuals to buy into companies that align with their values.
Mutual funds and EFTs offer diversification and are a great way to reduce investors' risk. Investors must research mutual funds and EFTs before understanding these instruments' objectives, fees, and threats. You can also seek help from financial professionals or a financial advisor to find the most suitable option based on your financial goals.
How Investors Will Benefit From Value-based Investing
There are many benefits to aligning your investments with causes you care about. It is a powerful tool to change the world while benefiting your pocket positively. By supporting these companies, you are promoting positive social change by encouraging businesses to behave responsibly.
Inclusive or Exclusive as You Want
As you invest, you can avoid companies you feel have negative images or conflict with your values. If you are concerned with climate change, avoid a company that still uses fossil fuels rather than renewable energy. Alternatively, you can invest your money into businesses that work positively in ways that matter the most to you. This could mean supporting companies with diverse portfolios, sustainable practices, or fair labor standards.
Accessible
Values-based investing is accessible to you regardless of your financial status. This investment option is not limited to those with significant financial resources. The rise of mutual funds and EFTs allows like-minded individuals to pool their money together to diversify and succeed in their investments. Because of this, the ability to invest responsibly has become democratized.
Greater Satisfaction
Sustainable investing can leave you with a greater sense of satisfaction or fulfillment. When you support a company that cares about the exact causes as you do, you may feel a sense of purpose as you contribute to positive change in the world. When you invest in a company, you are paying attention to its financial success and social impact. Furthermore, investing in businesses that align with your beliefs can create an investing legacy that lives long after you are gone.
A Potential Drawback
Unfortunately, this approach only sometimes results in a significant financial return. To understand this method's limitations and risks, it is essential to do extensive research. Some businesses that align with your values may perform poorly financially, despite having a solid mission or belief system.
The increasing demand for responsible investing has made this method a popular choice for those looking to make positive changes through their money. When your values meet your investments, you can achieve a satisfactory return while positively changing the world.
Frequently Asked Questions (FAQs)
Values-based investing can be a complex process. As you begin investing based on your values, you may be left with questions and concerns. You can find answers to many of your inquiries by researching or turning to a financial advisor. Here are some common questions you may have concerning values-based investments.
Will my financial performance decline if I invest based on my values?
This is a common misconception. Research has shown that companies with sustainable practices tend to have a competitive advance in the market. This can also provide returns with a lower chance of risk. When you support companies that align with your values, you can avoid financial or repetitional harm due to unattainable practices.
Is value-based investing a good idea?
Investing with values is a great idea! Companies that highlight being responsible tend to outperform their competitors in the market. This is partly because they attract a more loyal customer base and mitigate the potential risks they deem harmful to their business. Best of all, this strategy can provide financial returns while supporting causes that matter the most to you.
Will I be paying more to invest in my values?
In the past, this method was generally associated with higher fees due to its specialized nature. The increase in values-based investing has made more affordable options available. Mutual funds and EFTs specializing in responsible investing have become more common, making investing at a lower cost easier.
What are some common causes for investment?
Various values motivate individuals. Some typical values include human rights, social justice, environmental sustainability, animal welfare, gender and racial diversity, and inclusion. Because every person is different, the possible concerns are endless.
How do I find companies that will align with my beliefs?
Many resources are available to help you find the right companies to support. Research providers like MSCI, Sustainalytics, and Bloomberg can help in the social screening process of companies based on their ESG criteria.
What are the associated risks of this approach?
This method tends to be subjective and dependent on your values, which of course, differ from one person to the next. This approach also eliminates particular sectors for consideration, limiting diversification. Values-based investing may also not be suitable for those with shorter-term goals.
Can I switch to value-based investing from traditional methods at any time?
Of course! You can ditch the traditional methods at any time. There is no requirement to stay with one strategy. Consider your risk tolerance, expected returns, and potential fluctuations as you switch your methods.
Learn how to Make an Impact With Invested Mom
Investing with values is an excellent way to align your investments with your values and beliefs while diversifying your investment portfolio. This strategy will not only help you to avoid harmful companies, but it will also help you to create a positive change in the world.
There are many ways to invest in your beliefs. Socially responsible investing, impact investing, and environmental, social, and governance factors supporting each come with their benefits to lenders.
If you are interested in making a difference through your dollars but need help knowing where to start, Invested Mom is here to assist. Our new course will explain how to create a diversified investment portfolio that reflects your values and beliefs and will help you achieve your financial goals. Investing with values doesn't just benefit you; it benefits the world around you by creating a positive change. Sign up for our new course and begin making an impact with your investments today!
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!