Ethical Investing: Is it sustainable to counter the rising cost of living/inflation?


As inflation rises, we see prices going higher each day. Prices have jumped by an average of 9.1%, hitting a record for the highest spike since 1981.

With demand and pull being the main reason for inflation, more people are investing in sustainable stocks. But are these stocks enough to counter the costs of inflation, along with the costs of living?

What Is Ethical Investing and How Does It Work?

Ethical investing is a type of investment that is driven by principles, morals, and/or values. For the most part, ethical investing screens for negative objects that people do not want to be added to their portfolios.

Ethical investing is a fairly broad term that covers various types of “sustainable investments.” These can include:

  • Standard Ethical Investing: Using their morals and beliefs to screen an investment opportunity.
  • Socially Responsible Investing (SRI): Investing in socially responsible stocks (i.e., sustainable supply chains, gender diversity, human rights, etc.).
  • Environmental, Social, and Corporate Governance (ESG) – takes all social, environmental, and corporate governance factors into account.
  • Impact Investing – Similar to SRI, but takes a more proactive approach (looks for companies that aim to leave a positive impact on the environment)
  • Green Investing – Focuses on environmentally-friendly companies. 

As an investor, it is up to you to choose the type of investment that you are most comfortable with.

Examples of Ethical Investing

An ethical investor would want to invest in something they believe is of noble worth. For example, let’s say that the person investing believes that smoking is not healthy. They would obviously not want to do any investing that encourages tobacco production. As a result, when buying stocks, they would avoid any companies that deal with tobacco manufacturing.

Another example would be, if an investor is a dedicated member of PETA. They believe that animals should not be put through suffering, and as a result, they would avoid investing in companies known to abuse animals. They would only invest in the ones that do not test on animals or create food only from plant-based ingredients.

Ethical Investing and Stock Market Availability

There are specific stocks on the market, but with a few catches. For example, if you purchase a passive fund that follows a big market, then you will invest in all stocks they have. In this case, the stocks would not be screened for ethical criteria. You would get exposure to stocks you don’t potentially agree with.

The only way to make sure you don’t choose an unethical company is to go for those companies that have very explicit criteria for ethical morals. These are rare, but if you do find them, you may use them to increase your portfolio.

Inflation Factors and How They Affect Living Costs

When inflation goes up, your purchasing power goes down. The value of your income, pensions, and savings are no longer as valuable. The only assets that usually keep up with inflation are collectibles and real estate. As a result, housing and rental units will also become more expensive.

Inflation is often caused by demand-pull, cost-push, devaluation, and expectations. If there is too much demand on a low supply, with too much money on the market for a few products, the prices will rise. This often results in people not being able to afford what they did before unless their income rises along with the inflation.

This can affect stock costs as well. The uncertain revenue growth along with rising costs can harm corporate profit margins. This can cause stock prices to fall, including green stocks. 

With more people investing in sustainable energy and environmentally-friendly assets, stocks are expected to rise, increasing the potential profits of the investor. “Green companies” using renewable energy may also diminish their resource expenses, reducing the stock interest.

How to Invest and Survive on Both Short and Long-Term

To invest in both the long and the short term, you need to take a few precautionary steps. Here are a few tips to keep in mind:

  • Review Cash Savings: Make sure that the interest rate of your account is close to the inflation rate. High-yield savings accounts are best for the short term.
  • Use ISA Allowance: This exempts you from having to pay tax on returns accrued on interest.
  • Start a Regular Investment Plan: The longer you keep the money in an account, the more interest you will get, eventually catching up with inflation.

Keep in mind that regardless of the type of investment, your capital may still be at risk. You need to invest in high-yield stocks for them to pay off. Sustainable stocks seem to pay for themselves, but this depends on how the market may change in the future.

How to Spot a Potential Scam

The problem with ethical investing is that there are many so-called companies out there that are responsible for “green-washing.” In other words, they advertise themselves as being sustainable or ethical, when in fact, there is nothing ethical about them.

The best way to spot a potential scam is to do diligent research. You can find their fact sheets on investment platforms and the company’s website.

The Bottom Line

While the interest rates of ethical investing seem to remain stable, we have to see whether it is sustainable enough to counter rising costs or not. The demand has yet to rise, keeping the prices low – but as the interest in sustainable energy increases, so may the value of stocks.


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About Andreea

Andreea is a content writer with a Master's Degree in Journalism, covering topics from various areas, including finances. She has been a writer since 2010 and has published hundreds of articles over time. She adopts a policy of transparent communication, where information is disclosed in an honest and well-researched manner.