When it comes to ethical funds, there are three main ways investors are defining ethicality. These include the shareholder primacy model, the stakeholder model, and the human rights-based approach.
Each model has its strengths and weaknesses, and investors must understand which best aligns with their personal beliefs and investment goals.
So let’s take a closer look at each of these models and see how they differ, or you can read more about defining ethicality here.
1 – The Shareholder Primacy Model
Source:businessinsider.com
The shareholder primacy model is a common consideration, with investors prioritizing ethics and looking for ways to define ethicality by their own values. Essentially, this model focuses on what’s good for the company’s bottom line rather than ethical considerations or environmental impact. While this way of thinking may seem selfish or greedy at first glance, there are a few key benefits to using the shareholder primacy model as your guide for ethical investing.
For one thing, evaluating business practices in terms of their monetary value helps to ensure that all companies are held to a fair and objective standard and helps investors keep informed about new advances and trends in business. Finally, because the shareholder primacy model emphasizes financial return, it encourages companies to strive for tremendous success and innovation – ultimately leading to better products and services for consumers.
2 – The Stakeholder Model
At its core, this model focuses on the needs of all stakeholders in a given business – including employees, shareholders, and customers. By considering the impact of its decisions on all these groups, a company can make more responsible choices that promote long-term success while also honoring its values. For example, an ethical investor might consider whether a company treats its workers fairly and pays them fair wages, whether it makes safe products or supports harmful industries, and whether it offers good customer service or fosters sustainable use of resources like water or energy.
3 – The Human Rights-Based Approach
This approach emphasizes that everyone has inherent rights, regardless of gender or socio-economic status. To put this idea into practice, investors must consider several factors when deciding which companies to invest in. These factors include the company’s treatment of workers and customers and its environmental and social impact. By recognizing that all people have certain fundamental rights and responsibilities within their communities, investors can help to promote more significant equity and fairness in society – two basic principles of ethical investing.
Wrap-Up: A Start To Ethical Investing
Source:meridianglobal.org
So, what’s the best way to invest? It depends on your definition of ethics. For example, if you believe that shareholders come first, then the shareholder primacy model is the best option for you. But if you think companies should be responsible to all their stakeholders- not just shareholders- then the stakeholder model is a better choice. Finally, if you feel that human rights should be at the heart of business decisions, go with the human rights-based approach. Whichever ethical perspective you choose, make sure to do your research and find a company that shares your values.
