10 suggestions for ethical investing

Ethical investing takes into account how socially responsible a company is when considering whether to include it in an investment portfolio. This article provides 10 tips to help you navigate this type of investing.

The criteria that you use to evaluate the suitability of companies for socially responsible investing can vary widely depending upon your priorities. The following are some of the factors normally assessed:

• Environmental practices: pollution reduction, recycling and energy-saving measures.
• Community relations: community service projects, scholarships and philanthropic investments.
• Employee relations: wages relative to the industry and employee empowerment.
• Equal opportunities: percentage of minority groups and women in the workforce.
• Customer relations: stringent quality control and monitoring of feedback from customers.

Bearing these considerations in mind, here are 10 suggestions for how you can start to explore the world of ethical investing.

Environmental issues may be top of the list, but you might also feel strongly about employment conditions or fair trade.

You may be determined to avoid the timber industry, but if you find out a company replants disused farmland, you might reconsider your position.

Shop around for investment opportunities that not only are compatible with your personal values, but also give you a good return on your money.

When looking at different investment funds or organizations, request written information about where they invest their money and how they make their selections. Ask for rationales and any documents that support their claims. Just because a company claims to be ethical doesn't mean it is.

A bank or superannuation fund that claims to be ethical may invest in what you may judge to be unethical businesses. It may exclude armaments, gambling and tobacco stocks, for instance, but still invest in petrochemical industries.

If you are assessing investment companies that claim to offer ethical investing, take a close look at the top 10 to 20 holdings in their portfolio. This information is available from the fund manager's website or call centre.

Socially responsible investment (SRI) management fees may be higher than mainstream ones because of the level of checking and screening. However, you may consider any extra costs worthwhile to ensure that your money is being invested responsibly.

Go online to search for rankings of socially responsible companies that you may wish to include in your portfolio.

Portfolios can include investments such as equities, property, offshore investments and venture capital, all of which may be confusing for the uninitiated. Seek out specialist advice, attend seminars and courses, and read as much as you can.

Shareholders have the right to raise questions about corporate governance and to table resolutions on social and environmental issues.

Investing in companies that you deem to be socially responsible can be rewarding from both an ethical and financial perspective. However, you should bear in mind that it is always recommended to seek professional advice before making investment decisions.