Socially responsible investing (SRI) is an investing philosophy that helps value-driven investors align their investments with their desire to do good. More than ever, people want to make an impact in the world, and where they choose to invest is an important part of that conversation.
What is SRI, and how can it help you invest better? Let’s dive in.
What Is Socially Responsible Investing?
SRI is a renowned investment philosophy that enables investors to financially support companies committed to positive societal impact. Criteria for what makes a company socially responsible varies, as some investors choose to focus on business practices, while others are interested in the environmental impact of a company’s production process or commitment to diversity.
SRI is an effective way to bring your personal values and beliefs into how you choose to spend your money. Investors are empowered in today’s market to pick and choose companies with similar values or priorities.
Across the board, interest in SRI continues to grow. Investors are more aware than ever of their money’s power and its ability to make a difference in the world. With the climate crisis and socioeconomic concerns growing, investors aren’t willing to turn a blind eye to the negative impacts of large corporations.
Investors, consumers, employees, and business leaders are aware of the importance of SRI and ESG criteria (more on this below).
In fact, an eye-opening 2021 survey found that:
- 83% of consumers believe businesses should be actively identifying & following ESG criteria.
- 91% of business leaders say their company should act on ESG issues.
- 86% of employees would like to work for a company with similar values as their own.
How to Measure SRI
One of the most common methods for measuring SRI is ESG criteria. ESG stands for Environmental, Social, and Governance. If you’re looking to invest in a responsible and socially conscious manner, ESG criteria can help.
Environmental
Environmental criteria pertain to the environmental impact of a company. You may be interested in companies that produce low carbon emissions, use solar energy, practice responsible waste management, or have other green energy initiatives.
Social
Social criteria are used to measure a company’s efforts towards bettering humanity and society. This could mean investing in companies with a diverse c-suite, fair labor practices, or initiatives to assist underserved communities.
Governance
Governance criteria refer to how a company’s actions are governed or regulated. Transparency with their financial statements or affiliations with certain political parties could count as governance criteria for investors.
Does SRI Impact Portfolio Performance?
While the idea of aligning your investments with your values sounds great in theory, it’s still important to focus on performance. With the options available to investors today, there’s no reason to sacrifice your ability to reach your long-term financial goals and achieve desirable returns.
With SRI investing, you can still use the central tenets of creating a high-functioning portfolio. These include understanding and following your risk tolerance, embracing diversification, setting clear goals, and understanding your time horizon towards retirement.
But by following your own ESG criteria, you have the power to pick and choose investments that are both excellent opportunities for growth and well-aligned with your values.
In fact, a 2019 study comparing SRI returns against the returns of index comparison, mutual fund comparison, hypothetical portfolios, and company performance found there to be little difference between SRI performance and the performance of more traditional options.
How to Be a Socially Responsible Investor
Becoming a socially responsible investor doesn’t mean you simply invest in your favorite companies and call it a day—Patagonia can’t save your portfolio!
You must also think about the mechanics of a successful, long-term investment strategy, like global diversification, risk tolerance, risk capacity, asset allocation, time horizon, tax considerations, goals, etc., and balance that with your socially responsible motivations. (Yes, it’s possible to have both).
Ultimately, your goal to be a socially responsible investor is an ongoing story. It’s often best to focus on the progress you make long-term instead of an “ideal state.” As with many things in life, strive for progress, not perfection, and I can help give you the tools to do just that.
There’s never been a better time to start making SRI a part of your financial plan. While your portfolio is a great place to start, consider other ways to take your passion for SRI out of the markets and into your community. Give back to others by volunteering your time or financially supporting causes you care about.
If SRI is important to you, it’s important to work with an advisor who aligns with these ideals as well. At Brightview Financial, I help tech workers identify SRI opportunities and align their investments with their values.
If this sounds like something you’re interested in pursuing, reach out and schedule a time to talk today. I can help you build a portfolio you’re proud of.