For many investors, building wealth is no longer the only objective. Increasingly, people are asking another important question: what is my money supporting while it is invested?

This is where ethical investing comes in.

Ethical investing is broadly defined as choosing investments not only according to their financial potential, but also according to personal, environmental, social or moral principles. In simple terms, it means attempting to make your investment portfolio reflect both your financial goals and your values.

But ethical investing can mean very different things to different people.

What Does Ethical Investing Actually Mean?

One investor may want to avoid companies involved in tobacco, gambling or weapons. Another may be particularly concerned about climate change and fossil fuels. Others might prioritise renewable energy, healthcare, sustainable agriculture, human rights, animal welfare or companies demonstrating strong workplace practices.

There is no single definition of what is “ethical”.

That is an important distinction because ethical investing is often personal. Your moral priorities may be quite different from those of another investor.

Investment strategies commonly approach ethical considerations through several methods, including:

• Negative screening, which excludes certain industries or activities.
• Positive screening, which actively seeks companies demonstrating desirable environmental or social characteristics.
• ESG investing, which considers environmental, social and governance factors alongside traditional financial information.
• Impact investing, which seeks investments designed to create measurable environmental or social benefits as well as a financial return.

The challenge is determining exactly what sits behind an investment labelled “ethical”, “responsible”, “sustainable” or “green”.

Your Money Has an Impact

Every investment represents ownership or financial participation in something.

When you invest in shares, managed investments, superannuation or other assets, your money ultimately helps support economic activity. For some investors, understanding where that money goes becomes an important part of their financial decision-making.

For example, someone who is personally committed to reducing their environmental footprint may feel uncomfortable discovering that a substantial portion of their retirement savings is invested in businesses they would deliberately avoid supporting in everyday life.

Ethical investing provides an opportunity to examine that relationship.

However, your moral objectives should not be considered in isolation from your financial objectives.

Values Still Need an Investment Strategy

An investment can align perfectly with your personal beliefs and still be unsuitable for your financial circumstances.

You still need to consider fundamentals such as diversification, investment timeframe, risk tolerance, liquidity, fees, taxation, income requirements and expected returns.

Concentrating too heavily on one particular industry simply because it aligns with your beliefs may expose you to unnecessary risk. Similarly, excluding large sections of the investment market can alter the risk and return characteristics of your portfolio.

Ethical investing therefore needs to be approached as part of a broader financial strategy rather than simply selecting investments that sound appealing.

There is also the issue of greenwashing—where environmental or ethical claims may appear stronger in marketing material than they are in practice. Two investment options both described as “sustainable” could have significantly different holdings and screening criteria.

Understanding exactly what you own matters.

Advice Is Paramount

This is where professional financial advice can be particularly valuable.

A financial adviser can help you first identify your financial objectives and then explore how your personal values might be incorporated without losing sight of your broader financial strategy.

The conversation may include questions such as: What industries do you absolutely want to avoid? Which causes are most important to you? Are there compromises you are willing to accept? How much investment risk are you comfortable taking? And how might your choices affect diversification and long-term outcomes?

Importantly, these conversations can evolve.

Your financial circumstances may change, investment markets will change and your personal priorities may change as well. Regular reviews can help determine whether your portfolio continues to represent both your financial objectives and your principles.

Ultimately, ethical investing is about recognising that your money can have more than one job.

It can help build your financial future while potentially supporting the kind of future you would like to see.

The key is making those decisions deliberately, with a clear understanding of both the investment consequences and the moral choices involved. Good financial advice can help bring those two objectives together.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)