When you’re getting started with investing, it’s important to research the options available to you. One such option, known as socially responsible investing (SRI), enables you to grow your money while doing good. It allows you to invest in social causes you care about. In fact, this type of investing has experienced significant growth in recent years. Socially responsible investments offer a great way to boost your assets while also making a difference.
Socially responsible investing, also known as ethical and green investing, means avoiding industries that negatively affect the environment and its people. This includes companies that produce or invest in alcohol, tobacco, gambling and weapons. Instead, SRI involves investing in companies engaged in ethical and socially conscious themes, like environmental sustainability and social justice.
Some investors also consider SRI to stand for sustainable, responsible and impact investing. Regardless of your preferred definition, socially responsible investing works toward both positive change and financial gain.
Socially responsible investing considers environmental, social and corporate governance, also known as ESG criteria. These criteria help many socially responsible investors decide which companies or funds to invest in. This includes companies that respect the environment, treat their employees and suppliers fairly and promote ethical policies. Some investors believe that companies that practice good citizenship can yield greater returns than those that don’t.
SRI works the same way as any other style of investing. But SRI adds company ethics and social responsibility into the equation, instead of simply putting your money into securities for growth. SRI tends to follow political and social trends. This means they’ve been dedicated to women’s rights, civil rights and anti-war efforts in the past. Now, socially responsible investors’ focus has shifted to mostly sustainable solutions to 21st century challenges. This includes climate change and ethical business practices.
You have several options available to you if you want to invest in good causes. For starters, you can make socially responsible investments individually or through socially conscious mutual funds, exchange-traded funds and index funds. You can use a robo-advisor, invest directly or participate in crowd or community investing. There is also a wide range of SRI products and asset classes, like public equity investments (stocks), cash and fixed income investments, like private equity or venture capital.
Start by identifying the level of risk you’re willing to take on. Consider your income and any current investments you have, including corporate-sponsored retirement plans. Then, define what “socially responsible,” “sustainable” and “impact” mean to you. Do you want to invest according to green energy or more in female-led companies? Think about your moral, ethical, religious and social values. You’ll also have to evaluate individual companies and investments by looking beyond financial statements. Measure their potential to impact a specific cause or movement.
You should still seek competitive financial returns when looking for socially responsible investments. It’s important to recognize that while SRI may feel better than other money-making tactics, it still comes with risks. As with any investment, returns aren’t guaranteed. Assess the financial outlook of socially responsible investments as you would any others.