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What is Socially Responsible Investing?

Nov 24, 2020 3:00:00 AM Budget, Investments




Written by Admin

Socially responsible investing (SRI), also known as sustainable investing, has been rapidly gaining attention and increasing in popularity over the last few years. It isn’t as hard as it sounds, and it can be even more lucrative than traditional investing methods. Further, even if you aren’t ready to start investing your finances, you can start researching socially responsible organizations and can shop from them when your budget allows.

Last year, one Morgan Stanley survey revealed that 85% of individual investors are interested in sustainable investing, compared to 75% of investors in 2017. But what exactly does sustainable investing or socially responsible investing entail?

This is a unique strategy for investing that aims toward generating both ethical changes and financial returns. When we think of being socially responsible, our first thought might be to volunteer at a charity event or senior center, donate to an organization that works toward a cause we care about, or collect trash from a park. But with socially responsible investing, we can take this goal a step further and invest in companies that make a positive impact on our environment or society.

Here’s how:

Guide to Socially Responsible Investing

Benefits of socially responsible investing

While the main goal of investing for most people is to earn a return on your money, socially responsible investing comes with the additional benefit of aligning your investments with your values. You can choose companies with business practices, products, and programs that align with the things you care about. Take, for example, a passion for the environment. This might lead you to invest in a company that focuses on green energy, like a reputable solar company.

Alternatively, socially responsible investing might include straying away from a particular company because of a certain policy or revenue stream they have that does not align with your values. Socially responsible investing is highly personal; it’s up to you to decide which companies you feel comfortable investing in. Another benefit of socially responsible investing is that studies have shown that these types of mutual funds not only tend to match the performance of traditional mutual funds but sometimes they perform even better.

Socially responsible investment options

Depending on your preferences, goals, and values, you can choose individual socially responsible investment options and invest in companies you care about. This might be environmental companies, companies that promote equality, or ones that provide educational resources to children in need. When it comes to individual investments, the choice is yours. But if you’re looking for an easier way to start socially responsible investing, you can choose a socially responsible fund that has done all of the vetting for you.

Socially responsible funds tend to avoid what they call “sin stocks,” which are known to cause damage to society. Cigarette and fossil fuel-based companies are two common examples of sin stocks. Socially responsible funds can act as a jumping-off point to get some ideas, or if you find that they align with what you’re looking for, the legwork is already done.

Other socially responsible investing methods

If you’re not ready to jump into the wide world of mutual funds and diverse investment opportunities, there are easier ways to practice socially responsible investing. This holiday season, start by choosing gifts or goodies from companies you feel good about supporting. If you’re passionate about small, family-based businesses, as many people are, head to your local bakery. Buy pies, cookies, and other treats to have at home, or pick them out and have them beautifully wrapped and ready to go as socially responsible and delicious gifts.

If you’re passionate about conserving the environment, make or buy gifts that are carefully crafted from recycled items or other materials you already have at home. If you’ve been practicing budgeting for investments, you can use this opportunity to take baby steps and test the water with socially responsible investing. Split your 20% allocated to investments between socially responsible funds, treats, or gifts, and use the rest the way you normally would. The growing trend of socially responsible investing is a great way to make an impact, contribute to something you care about, and still earn a return on your hard-earned money. 

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