ETHICAL

INVESTING
EXPLAINED
2 M A R K L Y T T L E T O N

ETHICAL
INVESTING
EXPLAINED
Ethical investing is the practice of investors using their
own ethical compass as a primary filter for the selection
of investment opportunities. Ethical investing hinges on
the investor’s own views. The term is sometimes confused
with socially conscious investing, but there are distinct
differences. Socially conscious funds generally adhere
to a principal set of guidelines in terms of investment
selections, while ethical investing culminates in a more
personalised outcome.

Ethical investors allocate capital to businesses whose

values and practices align with their own personal
beliefs, be those beliefs rooted in religious, political or
environmental precepts. Some ethical investors eliminate
entire industries based on their own ethical guidelines or
over-allocate to other sectors. For example, they may opt
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to avoid ‘sin stocks’ in companies that are involved in what are traditionally regarded as immoral or
unethical activities, such as firearms, alcohol or gambling.

Careful research is required to determine whether investments or industries align with an ethical
investor’s beliefs, particularly when it comes to investing in a mutual or index fund.

Religion is often a strong influence in investment decisions. The earliest recorded example of ethical
investing in the US was the restriction of 18th Century Quakers from investing in the slave trade.
Another example of religion influencing investment decisions can be seen in Islamic banking,
which shuns investments in gambling, pork, alcohol and other forbidden items.
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MARK LYTTLETON.