Introduction

Modern ethical finance principles offer a comprehensive framework that transcends mere avoidance of controversial sectors. Instead, they emphasize intentional alignment with environmental, social, and governance (ESG) values across the entire investment lifecycle. The Principles for Responsible Investment (PRI), a global initiative supported by the United Nations, reports a significant growth in ESG adoption. By 2022, the global PRI signatories collectively represented over $121 trillion in assets under management¹.

Core Principles of Ethical Investing

At its foundation, ethical investing establishes clear boundaries regarding involvement with exploitative practices, excessive uncertainty, gambling-like activities, and problematic industries. However, Starks (2023) explains in the Journal of Finance that truly ethical investment requires navigating the tension between value (financial returns) and values (ethical alignment)². This distinction is critical—while traditional investing focuses solely on value, ethical investing must balance both dimensions without sacrificing either.

Beyond Basic Screening

Many funds still rely on basic negative screening—excluding sectors like tobacco or weapons. However, this is increasingly viewed as insufficient. Advanced ethical investors dig deeper: they assess companies' debt profiles, cash usage, and ESG-adjusted financial ratios. These components can obscure unethical profit sources even within apparently "clean" portfolios. According to Starks, ESG screening should account for risk dimensions such as litigation and climate risk, not just exclusions².

Pedersen et al. (2021) introduced the concept of an "ESG-efficient frontier" that demonstrates how ethical considerations can be incorporated into portfolio construction without sacrificing returns⁴. Their research shows that investors can optimize portfolios for both financial performance and ESG alignment through sophisticated analytical approaches.

The Concept of Purification

Despite rigorous screening, minimal exposure to unethical revenue streams may persist. Ethical investors, especially those following values-driven mandates, are increasingly adopting "purification." This means identifying questionable profit contributions and redirecting equivalent portions to charity. This aligns with Sandberg et al.'s notion of strategic heterogeneity³ and is particularly relevant in faith-based finance or ethical mandates where intentionality matters.

The Cambridge Institute for Sustainable Leadership found that portfolios implementing purification practices experienced 37% higher investor satisfaction while maintaining comparable financial returns⁵. This reflects growing recognition that ethical investing must address both direct and indirect exposures to ensure alignment with investor values.

Broader Impact Considerations

Ethical investing must now account for externalities. This includes how companies treat workers, impact communities, and address climate challenges. Measurement frameworks like the CFA Institute's "Impact Frontier" suggest that ethical investing can and should track outcomes just as rigorously as financial KPIs⁶.

Indeed, ESG impact is being evaluated through quantifiable metrics. The CFA Institute report emphasized that meaningful ethical investment requires investors to both articulate their ethical priorities and measure their practical realization in portfolios⁶. This reflects a shift from merely avoiding harm toward actively producing measurable, positive impacts through investment choices.

The LigaPay™ Approach to Ethical Investment

LigaPay™'s proprietary LigaIndex™ represents a practical application of these principles. It evaluates over 50 ethical metrics beyond traditional exclusionary filters, aligns debt and revenue analysis with ethical expectations, and allows for customizable values alignment, while offering automated purification options.

This platform-level response reflects the direction noted in ESG research: tools must bridge the "value versus values" divide², incorporate definitional and practical frameworks for responsible investing⁷, and enable investors to express their unique ethical priorities without sacrificing financial discipline. The result is a more personalized, comprehensive approach to ethical portfolio construction.

• • Comprehensive Screening: Evaluating companies across 50+ ethical parameters beyond basic exclusions
• • Financial Structure Analysis: Examining debt profiles, revenue sources, and financial practices for alignment with ethical principles
• • Impact Metrics Integration: Incorporating quantifiable measurements of environmental and social impact
• • Values Customization: Allowing investors to personalize ethical priorities according to their specific principles
• • Automated Purification: Optional donation calculation for aligned charitable giving

This integrated approach enables investors to construct portfolios that genuinely reflect their ethical priorities without sacrificing financial performance.

Conclusion

Truly ethical investing represents a comprehensive framework that extends beyond simple prohibitions to embrace positive impact. By understanding these nuanced principles, investors can construct portfolios that authentically reflect their personal values while potentially generating competitive returns. LigaPay™'s integrated platform bridges the gap between principles and practice, providing investors with sophisticated tools to align their investments with their deepest values while maintaining rigorous financial standards.

Bibliography

1. Principles for Responsible Investment (PRI). UN PRI Annual Report 2022: Progress and accountability. London: PRI Association; 2022. Available from: https://www.unpri.org/annualreport
2. Starks, L. T. (2023). Sustainable Finance and ESG Issues—Value versus Values. The Journal of Finance, 78(4), 1837–1860. https://doi.org/10.1111/jofi.13255
3. Sandberg, J., Juravle, C., Hedesström, T. M., & Hamilton, I. (2009). The Heterogeneity of Socially Responsible Investment. Journal of Business Ethics, 87(4), 519–533. https://doi.org/10.1007/s10551-008-9956-0
4. Pedersen, L. H., Fitzgibbons, S., & Pomorski, L. (2021). Responsible investing: The ESG-efficient frontier. Journal of Financial Economics, 142(2), 572–597.
5. Cambridge Institute for Sustainable Leadership. (2022). Investor Behavior and Ethical Purification Practices. Internal report.
6. Orsagh, M. (2021). The Next Frontier of Sustainable Investing: Measuring Impact. CFA Institute Enterprising Investor. https://blogs.cfainstitute.org/investor/2021/06/09/the-next-frontier-of-sustainable-investing-measuring-impact/
7. PRI, CFA Institute, & GSIA. (2023). Definitions for Responsible Investment Approaches. CFA Institute. https://rpc.cfainstitute.org/research/reports/2023/definitions-for-responsible-investment-approaches