There are thousands of exchange-traded funds (ETFs) in the world today. However, not all of them are created equally. Some ETFs uphold high standards when it comes to ethics and sustainability. Other ETFs do not—and investors should be cautious about which ones they’re buying into. This makes it hard to know whether or not an ETF is ethical before you buy into it.
You might think that these things don’t matter much when you’re just looking at a list of investments, but once you start digging deeper and reading the details beneath the surface, it becomes clear that some things are more important than others.
There are many different factors that make an ETF ethical or not, and knowing what they all are is the first step towards making sure you aren’t investing in something you shouldn’t.
Here we take a look at the different types of ethical investing and what makes a sustainable ETF.
A Good Reputation
A good reputation is the first thing to look for when assessing the ethics of a sustainable ETF. An ETF with a good reputation will have a track record of doing the right thing, and should be up-front about its activities.
Investors should be able to find information about an ETF’s reputation in its annual report, on its website, and on third-party review sites.
Note that just because an ETF has a good reputation now, that doesn’t mean its future investments will be ethically sound. It’s important for investors to keep tabs on companies that they’re invested in, and make sure that the ETF isn’t investing in companies that they don’t agree with.
Environmentally Friendly Investments
While some ETFs invest directly in renewable energy sources such as solar and wind, others contain stocks from companies in the fossil fuel sector. So, make sure the ETF you put your money in is investing in renewable energy to support a sustainable planet and make you some profits at the same time.
Transparency in Management
Transparency is one of the most important things to look for when determining the ethics of a sustainable ETF. There are many different ways to be transparent, but the most important details to be open about are an ETF’s holdings.
The holdings of an ETF reveal which organizations it is invested in. By researching these organizations, investors can track where their money is going, and decide whether or not it’s worth investing in that particular ETF.
Trackable Results
One of the main reasons to invest ethically is so that you can be sure your investment is actually making a difference. After all, investing ethically is about more than just having a nicer-looking portfolio—it’s about making responsible choices with your money. There are many different ways to track results, but the most important thing to keep an eye on is a fund’s performance.
It’s important to remember that even if an investment is ethically sound now, it may not be in the future. Ethical ETFs change regularly as they diversify their holdings. This means that ethically sound investments can ebb and flow as new information comes to light. You must stay up to date on the investments you have in your portfolio, and decide whether or not changes are for the better or for the worse.
In Conclusion
There are many different types of ethical ETFs, and finding the one that’s right for you will take some research. However, the effort is worth it, and the end result will be a portfolio full of ethically sound investments.
