How To Be an Ethical Investor

Investing is a tricky business, and it’s doubly so when you want to limit yourself to companies that are truly socially responsible. If you want to be scrupulously ethical as well as smart, how do you choose wisely?

As the founder and managing editor of Green Money Journal, Cliff Feigenbaum has been tracking socially responsible investing since 1992. For him, ethical investing has four components:

1. Avoidance screening. Make sure you’re not investing in companies that are problematic because of what they make (tobacco, for instance) or how they do business (disregard for the environment or workers). While you can do this screening on your own, Feigenbaum recommends relying on socially responsible investment funds to help you get the facts right. By perusing their annual reports or web sites, you can get a list of companies they’ve chosen not to avoid. This way, you’ll be screening out the bad actors.

2. Positive screening. This involves actively seeking out companies you’d be proud to own. Maybe it’s a renewable energy company or a company whose product is organic. Here, too, you can lean on socially responsible investment funds to provide you with investment candidates.

Whether you choose to invest in socially responsible companies through a fund or on your own is up to you. When you invest in a fund, you spread your risk across many companies, and that’s a safer strategy. There’s also an added cost because investment funds take a small management fee. For many people, the premium is worth it.

3. Shareholder activism. Another reason people invest in companies is to influence management. The importance of this is not to be underestimated. In Feigenbaum’s words, “You can’t change a company unless you own it.” While you can engage in shareholder activism on your own, you’ll get a lot more leverage by investing through a socially responsible mutual fund. When you do this, they are the owners of record and they represent your interest. It’s a really good deal for you: your vote has more leverage, and they do the work!

4. Community investing. This is the fastest-growing aspect of the ethical investing movement. Community investing typically involves microfinanceólending modest amounts of money to small-scale entrepreneurs in impoverished areas. The non-profit and Microplace, a for-profit eBay subsidiary, are two ways to pursue community investing. Social funds like Calvert and Domini do it too.

Ethical investing is big and getting bigger, with close to 10 percent of funds under professional management held by socially responsible investment funds, according to the Social Investment Forum. You can catch this wave if you want to. The best way to do this is by using the socially responsible mutual funds as your surfboard. At a minimum, you can rely on their research, and you can invest through them, too. By leveraging their reseach and know-how, you can have made solid investments that leave you with a clear conscience, too.

For more information, visit the Green Money Journal or the Social Investing Forum.

Carl Frankel is a journalist and author who has been writing about green business, green products, and integral living for the past 20 years.

By Carl Frankel, Care2 Green Living contributing writer


Andy O.
Past Member 5 years ago


Robert O.
Robert O6 years ago

It will no doubt take a lot of work (since socially responsible companies are aout as rare as the do-do bird) but most times is well worth the extra effort. Thanks.

Mayes Jampri
Mayes Jampri8 years ago

Being a socially responsible and ethical investor may take some extra work screening companies, but a clear conscience will be your reward

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