What is Socially Responsible Investing??
Socially responsible investing (SRI) is an investing strategy that aims to generate both social change and financial returns for an investor. Socially responsible investments can include companies making a positive sustainable or social impact, such as a solar energy company, and exclude those making a negative social or environmental impact, such as alcohol, tobacco, fossil fuels, and gambling for instance.
The abbreviation “SRI” is also known as: sustainable, responsible and impact investing. Another common acronym for this is ESG investing, which stands for Environmental, Social, and Governance investing.
Understanding socially responsible investing
Investors interested in SRI look at a variety of standard factors such as expenses, profits, etc. but also by whether a company’s revenue sources and business practices align with their own values.
For example, If you’re concerned about the environment, your portfolio will likely have investments in green energy sources such as wind and solar companies. If you are interested in supporting the advancement of women, people of color and other marginalized groups, you could have mutual funds that invest in women-run companies or hold stock in Black-owned businesses.
There are plenty of options for SRI Funds readily available. Previously, SRI funds have had higher fees than their traditional counterparts, but according to 2019 Morningstar data, of more than 40 diversified ETFs that follow ESG criteria, 13 charge expense ratios between 0.09% and 0.2% per year, which is very low.
SRI performance
So, how does this kind of investment strategy compare to more standard approach? Quite well in fact!
Many studies have shown that SRI mutual funds can match traditional mutual funds in performance, and sometimes perform better. Part of these reasons is they tend to be less volatile.
In recent years, there has been some heavy skepticism that SRI funds could not perform as well and was more of a “novelty.” With an increased scrutiny on how companies operate, and an increase in popularity, SRI investing is becoming a viable option. It is not only good for your conscious, but it is good for your investment portfolio as well!
How do I build a socially responsible investment portfolio
Creating an ethical portfolio doesn’t have to be complicated hard to do. As long as you know the values that are important to you, you can start using your investment dollars for good.
Most people do not have the time to do the kind of research and vetting that needs to be done to find the right kind of SRI funds for your values and goals. Finding a local investment advisor who is familiar with SRI funds can help you build the appropriate fund allocation for you to achieve what you are looking for.