Investing can be complicated, especially if you’re just starting out. An easy way to narrow down the types of investments is by examining which opportunities line up with your own personal ethics and values. Growing your money while making a difference? If it seems too good to be true, it isn’t. This altruistic form of allocating funds is called socially responsible investing.
What is Socially Responsible Investing?
Socially responsible investing, or SRI, is investing with a conscious. Essentially, social responsible investing is a merge between financial gain and making a positive impact. Whether it’s women’s or civil rights, anti-war efforts, climate change, or decreasing world hunger – every investment is made with the end goal of reallocating funds to a conscious cause. The actual process details excluding companies and types of investments that do not align these core values.
ESGs Work Hand-in-Hand With SRI
There’s a strategy used to round up values-based companies to invest in. And this strategy is broken into three categories: environmental, social, or governance impact, also referred to as ESGs.
Environmental: These companies are directly or indirectly dedicated to reducing their carbon footprint. If you’re looking to invest in green companies, you’ll want to ensure the company practices using green technologies, water and natural resource conservation, decreased pollution, recycling, and hazardous waste management.
Social: Companies that promote overall connectivity within the society at large. For example, companies that encourage employee retention and satisfaction, promote diversity and inclusion, and foster optimal company culture are ones that are viable options for social impact investments.
Governance: This refers to how the actual company is managed. Wanting to invest in a company that has ethical business practices and is committed to equal pay amongst its employees
Is Conscious Investing Right for Me?
If you want to invest, but prioritize investments that align to your values, then SRI is right for you. Financial outcomes are important, however, you’ll want to find the best values-based fit for your investment. This will require you to ask yourself key questions about your own personal values. Is investing in woman-owned businesses important to me? How about companies that promote sustainable energy? Perhaps you’re primarily interested in investments that give back to K-12 education.
Whatever, the cause, analyze whether the types of investments will match your moral, social, ethical, and/or religious views. Side note: SRI also means avoiding investments that directly misalign to your values, too. For instance, if one of your core practices is promoting internal health, you wouldn’t want to invest in a tobacco or cigarette production company.
There’s a ton of diversity in SRIs. Options include investing in individual SRIs or making socially responsible investments through mutual funds, index funds, or exchange-traded funds.
If you aren’t sure which companies truly align to your values, it’s best to hire a financial advisor that can provide guidance in this specific arena.