Analyze the role of ethical investments in an investment portfolio and explain how a strategy of ethical investment may conflict with other investment objectives.
Response.
In the field of investments and financial investing, the financial actions we take are driven by our ethical concerns to society and the environment. The field of ethics involves systemising, defending, and recommending concepts of right and wrong behaviour. Ethical investments play a major role in an investment portfolio and primarily manifests the strategy the investor partakes in. A reasonable investment is an umbrella term used to describe an investment process that takes environmental, governance or ethical considerations into account. Many people invest ethically in consideration with their own values and beliefs to justify the notions of right and wrong. For instance, a shareholder who believes in renewable energy and clean energy along with the protection of natural resources may oppose against companies involved with mining, such as BHP Billiton. Instead, they would be inclined to invest in companies such as TrustPower Ltd who generates 100% renewable electricity from wind and hydropower. However, ethical investments limit the wide range of investments available to shareholders. By limiting the diverse range of investments, ethical investments may potentially reduce the chances of preferable results. .
An example many consider as an unethical investment would be the British American Tobacco. It is the second largest manufacturer of cigarettes in the world and has experienced a dividend of 91% over the last five years. Shareholders would certainly invest in this company as it has experienced such a high dividend. However, the world understands smoking is severe and a potential health risk. Investing ethically for shareholders would mean you would definitely invest in other companies such as Cochlear Ltd who aim to provide implants for hearing-impaired people.
