What is “Socially Responsible Investing”?

When deciding where to invest your hard-earned money, there are many factors to take into consideration. From measuring risk and return to diversifying your portfolio, a lot of thought and strategy are invested in your investment. However, in recent years, an additional layer has become more prominent in the planning process- putting principle before profit.

Socially Responsible Investing (SRI) has made a significant leap in popularity in recent years. According to The Forum for Sustainable and Responsible Investment, “investments in socially responsible strategies are up 89 percent since 2012”.

So, what does it mean to be a socially responsible investor?

In essence, it means that the companies that you invest in operate in an ethical manner or align with your values and beliefs.

Oftentimes, people associate SRI with “green companies” or environmental issues. However, this investment strategy encompasses a wide range of factors, including: employee treatment, business practices, social causes, specifications of industry or products, and so on.

There are several SRI classes that vary in terms of strictness and industry:

Traditional SRI: When making a traditional SRI investment, aim to avoid companies that operate in areas of controversy (such as alcohol, gambling, weapons, and more) and instead favor those that do not.

Environment, Social, and Governance funds (ESG): This type of investment selects funds based on their environmental or social guidelines in addition to traditional fund performance measures. Here are a few things to consider under each of these criteria:

Environmental: How has this company addressed environmental issues in the past? What strides have they made to correct these behaviors and practices? Are they a green company?

Social: When evaluating a company’s social impact, you’ll want to consider both internal and external factors. How do they treat their employees? Are they active within their community? What causes and organizations does this company support? Do they treat their customers well?

Governance: This criterion can encompass an array of ethical issues. How do they do business? Are they taking advantage of loopholes or are they following legal guidelines?

Impact Funds: These investments would also fall under the ESG funds criteria; however, impact funds focus on assisting a business or organization complete a project that will benefit society.

Faith-Based: These investments are centered around stocks that follow Christian, Catholic, or Islamic values.

For more information on investing strategies or socially responsible investing, please contact one of our trusted advisors to learn more.