Ethical investing refers to a strategy of investing in companies or asset classes that align with the moral, religious, and social values of the investor and avoiding companies and assets that are deemed objectionable to the investor. Investing ethically empowers an investor to fund and support his\her ideologies and stances while still earning a reasonable return on investment, thereby pioneering change in society.
What is ethical for one investor might be unethical to the other investors. Therefore, the major problem then is, how to apply ethical investing when there are varying definitions of ethics and ideologies? One must understand that rather than unanimously deciding rights and wrongs for society, ethical investing is all about investing in a cause that is aligned to the investor’s definition of rights and wrongs and supporting that cause by indirectly funding and promoting them. There are various methodologies to do the same, like negative screening, ESG themed Investing, Impact Investing and so on.
The concept of ethical investing in India is at least a decade old, but its growth did not pick up until recent years. Ethical investments in India are currently witnessing an unprecedented surge fueled by global trends, the COVID-19 pandemic, increased awareness due to social media, and an increase in the scope of sectors to invest in. Various Indices are designed by both NSE and BSE for investors who prioritize ethical considerations. The NIFTY ESG, NIFTY ENHANCED ESG, and NIFTY SHARIAH are some of the most well-known ethically oriented indices. Even though the indices were launched by both NSE and BSE, mutual fund companies are a bit hesitant in launching ethical-theme-based funds. However, there is a rise in ESG themed mutual funds post COVID in India.
There are several infrastructure challenges for ethical investments, as well as some cogent core issues. In India, the adoption of capital market products has remained slow, primarily due to investors not being thoroughly aware of their fundamental nature. Adding one more layer of information just makes it difficult to comprehend. The field is such that it demands the utmost clarity with regards to the ultimate purpose of investment. There must be some virtues embedded in the investor based upon which it decides to invest ethically. Unlike trading, which demands a sheer profit motive, the ethical investment arena demands a lot of patience, hope, and a sense of service for society. No doubt that, in the long run, this eminent field rewards the investor with multiple benefits, not just in terms of monetary gains, but also with some hard-earned insights to suit the intellects, in return for their invaluable time and money invested.
