Socially Responsible Investing

In the coming months, I will be looking to start investing in stocks and shares in order to plan for my retirement. In doing this, I plan to invest in Exchange Traded Funds (ETFs). You buy these through a company that buys a small share in several companies in a market for you. It is a great and sure-fire way to see an investment portfolio grow steadily over many years. However, I have one major issue with this: what if the companies whose shares are included in the ETF are unethical and socially irresponsible? What is their industry goes against my beliefs?

However, I have one major issue with this: what if the companies whose shares are included in the ETF are unethical and socially irresponsible? What is their industry goes against my beliefs? 

A simple example would be an ETF that follows the FTSE 100 in the UK. If I bought an ETF like this, I would be investing (however small an amount) in BAE systems, a weapons manufacturer. I don’t want any of the money I invest going to support this.

Therefore, I am looking for an ethical ETF. Now, what is ‘ethical’ will differ from person to person and this muddies the water when looking at commercial products. This is exemplified by the MSCI United Kingdom SRI Index, which excludes companies involved in: Nuclear Power, Tobacco, Alcohol, Gambling, Military Weapons, Civilian Firearms, GMOs and Adult Entertainment. When looking at these, this article (link) by PensionCraft deals with this problem nicely, in my opinion:

“You may be looking at some of those categories and thinking, why is that excluded? For example nuclear power and Genetically Modified Organisms are, in my opinion, okay if properly regulated. In the US the five million members of the National Rifle Association would question the exclusion of civilian firearms. Members of the armed forces may question the exclusion of companies that produce military weapons. This highlights the problems of a pre-canned investment package: it won’t be appropriate for everyone. If you don’t agree with it, don’t buy it! You can always buy individual stocks and bonds which are in line with your own principles.”

Although I also believe GMOs are ok if properly regulated, I think I would still be happy to buy this stock. I can always invest in a GMO company if I really want to. I am more interested in buying an ETF that rules out companies that are in industries that I really do not want to invest in. However, this does bring up an important point. Just from a brief internet search, there are many ‘socially responsible’ or ‘ethical’ ETFs out there.  Just because an ETF says it excludes certain industries doesn’t mean that everything it includes is great either! Also, what a company running an ETF determines as ethical might differ from what you believe to be ethical.

I guess what is required now is lots of research. If anyone has any tips, thoughts, or ideas, they would be greatly appreciated! Here are some questions to get you thinking:

  1. What might your ideal ethical ETF not include?
  2. To what extent is it our moral duty to invest ethically?
  3. To what extent is it our moral duty to know and understand where our money is going? (does this also link to the idea of ethical purchasing of clothes, food etc?)
  4. What socially responsible ETFs are there?

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