Ethical investment is the process of investing into business opportunities in line with ethical principles. This usually involves choosing companies whose mission is to help the community and avoiding businesses that are morally objectionable.
As such, ethical investment is similar to both social or sustainable investing and impact investing, in that both ‘positive screening’ and ‘negative screening’ can be used in the evaluation process.
An ethical investor is still focused on businesses which aim to generate a return on capital invested but will take ethical considerations into account when evaluating investment opportunities.
On the level of the individual investor, this screening process will come down to personal preferences.
On an institutional level, ethical investment funds can be split into two categories: ‘dark green’ and ‘light green’ ethical funds.
Dark green ethical investment funds use an investment strategy like social investors where they use ‘negative screening’ to avoid investing in companies which seem unethical.
Light green ethical investment funds follow the ‘positive screening’ style of impact investors i.e. they actively target companies aiming to make a difference to an environmental or social challenge in an ethical way.
The extent to which a company is deemed ethical will often come down to the personal view of individual investors, but a general definition for an ethical entrepreneur or ethical business could be: a company that is socially responsible in some areas while remaining profit-driven.