Slacker’s Syllabus: Ethical Investing

Maxine McCrann
BySarah Fielding

You’ve probably heard the term “vote with your wallet.”

Consumer activism is a pretty turnkey way to make your voice heard, whether by buying from brands you believe in or boycotting ones you don’t.

But what about ethical investing?

Investing in companies that align with your values is a bit more complicated, but it’s possible — and there are many financial expert-approved ways to do it.

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85%

The percentage of individual U.S. investors interested in sustainable investing. Among Millennials, the number is even greater at 95%

Morgan Stanley Institute for Sustainable Investing

So when should you invest?

According to Nate Hoskin, CIO of Hoskin Capital and a certified financial planner (CFP), you should only consider investing after creating an emergency fund — at least 3-4 months of expenses saved in a high yield savings account.

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Does it actually work to invest in line with your values? Absolutely. 100%. If you can make an impact with your investments, not only are you making sound decisions for yourself, but you’re making sound decisions that benefit others that are impacted by your investments.

Before you get started, brush up on the basics of investing, and take a few key steps:

  • Decide if you’d like to work with a broker or go the robo-advisor route.
  • Consider how much of a risk you’re willing to take when investing. If you’re looking for a low-risk approach, micro-investing may be right for you.
  • Consider the different types of investments you can make, like individual stocks and mutual funds.
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Hoskin and Stanley recommend asking the following before investing in a company:

  • What is the company’s mission statement?
  • Does this company treat its workforce fairly?
  • How are the company’s profits being used?
  • Is the company living up to its sustainability pledges?
  • Do they have any political affiliations?

You can also look for

ESG (environmental, social, and governance) ratings,

which provide a good indicator of companies’ social responsibility. There is no formal score, but companies such as MSCI, Sustainalytics, and RepRisk use factors such as carbon emissions and board diversity for ratings. But it’s important to note that having an ESG label doesn’t mean a company is perfect, and you should always do your research.

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217

The number of companies that have signed The Climate Pledge — a commitment to have net-zero carbon emissions no later than 2040. Signatories include Snap Inc., HP, Procter & Gamble, Visa, and Alaska Airlines.

The Climate Pledge

Does a pledge mean anything?

“Every company nowadays has a sustainability pledge of some sort, the trick is to figure out if they are living up to it," Hoskin says.

But is ethical investing financially sound?

According to NerdWallet, sustainable funds have been shown to do as well or better than traditional ones. In the first quarter of 2020, 24 of 26 ESG index funds outperformed similar conventional funds.

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Set a Google alert for the company.

If you’re considering investing in a company, start gathering current info. “Sometimes these stories can be positive regarding values that investors care about,” says L.J. Jones, a financial planner and founder of Developing Financial LLC. “Other times, it can inform an investor that a company they are invested in made a decision that might run counter to the investor's values.”

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Reach out to an employee.

Hoskin recommends connecting with an employee through LinkedIn to learn more about a company’s culture, leadership, sustainability, and values.

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Look into their charitable contributions.

If you care about specific causes, such as breast cancer research or LGBTQ rights, Stanley suggests searching for companies that devote a part of their profits to these endeavors.

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By owning companies that investors believe in, they are more likely to not interrupt the growth of investments even in market downturns. This can be a great benefit to investors who invest based on a company's values.

L.J. Jones