Ethical funds limit investment activity to companies known to operate ethically, with guidelines that may focus on environmental ethics, animal welfare, treatment of workers, and political issues. Investors can buy stocks in a mix of ethical funds to balance their portfolios and seek independent investments.
An ethical fund is a mutual fund with strict investment guidelines that limit investment activity to companies known to operate ethically. Such funds may focus on issues such as environmental ethics, animal welfare, treatment of workers, and political issues such as weapons manufacturing or trade with nations believed to harbor terrorists. Fund guidelines can be positive, directing fund managers to specific types of investments, or negative, providing information on which types of investments to avoid. Many companies offer ethical funds for investors who wish to behave in a socially responsible manner.
Fund managers and other executives develop the guidelines for an ethical fund early on. They provide clear direction for the types of investments the fund may participate in, and these may be adjusted from time to time to address changes in the business and investment community. Investments made by an ethical fund can be tracked by individuals who want to generate lists of ethical companies, for the purpose of helping individual investors select ethically sound investments.
Ethical funds with an environmental focus will avoid companies known to pollute, produce substances harmful to the environment, and similar problems. The ethical fund may also try to promote investment in companies that respect the environment, such as companies that work in alternative energy. Animal welfare may be a concern for other funds. Administrators of such funds will avoid companies with histories of animal abuse and violations of animal welfare laws, and may seek companies that use alternatives to animal testing and take other steps to promote animal welfare.
For funds with a focus on worker safety, happiness, and health, the ethical fund will look for companies with good worker performance ratings, including companies with good employee benefit programs, low health violations, and safety, and a demonstrated interest in the welfare of employees. Political ethics funds may avoid investments in countries considered enemies, or may choose to avoid investments in weapons systems and related technology. Some funds include a mix of these traits, while others may focus on just one.
People concerned with ethical investing can buy stocks in a mix of ethical funds to balance their portfolios, and can also seek independent investments. Trade publications tend to list the largest investments made by ethical funds, along with the ratings used by some funds to classify the investments. This information can enable investors to decide which funds they wish to invest in, along with identifying the securities they wish to independently purchase.
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