Today’s consumers better understand the social and environmental impacts of their choices. So it follows that investing isn’t just about financial returns anymore. Socially responsible investing is an investment strategy that considers both financial return and social/environmental good to bring about a positive change.
If you’re looking to align your portfolio with your values, SRI is an avenue worth exploring.
So What Exactly Is Socially Responsible Investing?
Socially responsible investing (SRI) involves selecting and managing investments based on ethical, social, and environmental criteria. It seeks to combine the intention to generate positive social or environmental effects with financial returns.
SRI goes beyond the traditional metrics like earnings per share or debt-to-equity ratio. It also examines the impact of a company’s activities on society and the environment.
Why Consider SRI?
- Align Investments With Personal Values: SRI enables you to invest in companies that align with your social, ethical, and environmental values.
- Risk Mitigation: Companies with strong social and environmental practices are often less susceptible to business risks like lawsuits, regulatory fines, and reputation damage.
- Potential for Competitive Returns: Research suggests that socially responsible investing can offer competitive returns compared to traditional investment.
- Drive Change: Your investments can help drive change by providing capital to socially responsible companies, thereby encouraging more sustainable practices in the business ecosystem.
Steps to Get Started
1. Identify Your Objectives & Conduct Research
Before jumping in, take time to clearly define your financial goals and ethical priorities. Are you focused on climate change, human rights, animal welfare, or perhaps a combination of these? Your objectives will guide your investment choices.
Next, do your research. Look at the following:
- Financial Criteria: Just like any investment, it’s essential to look at the company’s financial health. Financial experts consider factors like historical performance, management quality, and competitiveness within the industry.
- SRI Criteria: Look into how the company scores on social responsibility. There are several ESG (Environmental, Social, and Governance) rating agencies that evaluate how companies perform on these criteria.
3. Choose Your Investment Method
- Direct Stock Purchase: You can buy shares of companies that align with your social responsibility criteria.
- Mutual Funds or ETFs: These funds pool money from multiple investors to buy a diversified portfolio of stocks that meet SRI criteria.
- Impact Bonds: These are bonds issued by organizations or governments to fund social or environmental projects.
- Robo-advisors: Some online platforms offer automated SRI portfolios based on your risk tolerance and social responsibility preferences.
4. Consult Financial Advisors, Monitor, and Adjust
If you’re unsure about making the right choices, consider consulting a financial advisor with expertise in SRI. This type of expert can help tailor a portfolio that meets your financial and ethical needs.
Like any investment strategy, SRI requires ongoing attention. So regardless of whether you use a financial advisor, be sure to stay updated on how your investments are performing, both financially and in terms of their social impact. Adjust your portfolio as needed.
Wrapping Up
Once you’re involved in SRI, consider encouraging others to invest responsibly too. Share your knowledge and resources to help drive the movement further.
Socially responsible investing isn’t just a trend — it’s a lasting approach to making the financial ecosystem more ethical and sustainable. By understanding your objectives, doing your research, and making informed choices, you can achieve both financial returns and drive positive social impact.