Ethical investing has been a popular concept for more then 10 years now. The goal with ethical investing is to only invest in ethical ( good) companies. Companies that do not do harm. An ethical investor can not invest in tobacco companies, arms companies, alcohol producers, oil companies and so on.
Ecological investing is a new type of ethical investing but with a more limited focus. Instead of avoiding to invest in unethical companies you try to avoid investing in companies that hurt the environment. You do however not care if they are unethical in other way. An ecological investor can invest in a tobacco company or alcohol producers provided they to not use unnecessary damaging techniques when growing their tobacco. These companies do not damage the environment even if they are unethical in other aspects.
An ecological investors should ideally not only avoid investing in companies that harm the environment. They should also actively try to invest in companies that develops new green technology and that can have a positive ecological impact in the future.
All this sounds good on paper but does ecological (and ethical)investing do any difference or is it meekly a type of virtue signaling.? A way to improve your own conscience.
Does ethical investing work
Ethical investing and ecological investing sounds like a really good idea but the truth is that most types of ethical investing does not work in today’s market. The small fraction of investors that chose to invest ethically is too small to have any impact on unethical companies. Most investors and day traders trading stock do not care about ethical concerns. They invest in the companies they think can give them the highest returns. The fact that a low number of investors chose to not invest in their stock will not have any measurable effect on the stock price of unethical companies. Ethical investing will hence not promote companies to act more ethically. For it to have a real effect we would need to see a large part of all investors to start investing ethically.
Shopping ethically can have a larger effect than investing ethically. Every lost sale affects a companies bottom line. A small portion of all investors choosing to not invest in their stock will not.
Choosing to not invest in unethical companies might feel good for your conscience but will not have any affect and will not promote a better tomorrow. This do however not mean that ethical or ecological investing is a bad idea. Ethical and ecological investing can be a good way to promote a better tomorrow. However to be a good tool to help promote a better tomorrow you need to focus on what companies you do invest in. Not which companies you choose not to invest in.
By investing in small up and coming companies with new green technologies you can help these companies grow and make it easier for them to succeed. Ideally you should invest in small companies when they do a public offering to raise more money. This allows small companies to stay alive and grow into large companies. Something they might not be able to do if they are not able to raise money.
The drawback of investing in small companies and up starts is that the risk is a lot higher then when you invest in more mature companies. The risk that the company fails is a lot higher then when you invest in large companies. You are likely to lose money on a large percentage of your investments. The ones that do survive can earn you large profits.
Investing in small companies can be very high risk. I therefore recommend that you invest most of your money in low risk stocks without concern for their ethical credentials and that you then invest a small part of your savings 10% (20% max) in small upstarts that help for a better tomorrow. This will help build a better tomorrow in a way regular ethical investing never can.
Invest in land
Another good way to invest ecological is to bypass the stock market completely and instead choose to invest directly in a piece of land that you want to protect. A piece of land that you can use in a sustainable way to earn a return. There are countless possibilities for all who want to protect a piece of land at the same time as they use it to earn money. The best methods depends on how large the piece of land is, where it is located, what types of vegetation that covers it and so on. You need to research how you could make money on the specific type of land you want to invest in.
Protected pieces of land can function as nurseries that allow many different species of plants and animals to become more plentiful in the protected and surrounding areas.